% Change 2008 vs. 2007 % Change 2007 vs. 2006
Net interest revenue $ 21,932 $20,741 $18,986 6% 9%
Non-interest revenue 6,720 8,717 7,649 (23) 14
Revenues, net of interest expense $ 28,652 $29,458 $26,635 (3)% 11%
Operating expenses 26,653 16,316 14,540 63 12
Provisions for loan losses and for benefits and claims 19,622 10,761 3,825 82 NM
Income (loss) before taxes and minority interest $(17,623) $ 2,381 $ 8,270 NM (71)%
Income taxes (5,354) 181 2,136 NM (92)
Minority interest, net of taxes 11 43 61 (74)% (30)
Net income (loss) $(12,280) $ 2,157 $ 6,073 NM (64)%
Revenues, net of interest expense, by region:
North America $ 16,627 $16,991 $15,526 (2)% 9%
EMEA 2,596 2,485 2,059 4 21
Latin America 3,959 4,185 3,740 (5) 12
Asia 5,470 5,797 5,310 (6) 9
Total revenues $ 28,652 $29,458 $26,635 (3)% 11%
Net income (loss) by region:
North America $ (9,003) $ 780 $ 4,002 NM (81)%
EMEA (606) (122) 5 NM NM
Latin America (3,822) 660 1,003 NM (34)
Asia 1,151 839 1,063 37% (21)
Total net income (loss) $(12,280) $ 2,157 $ 6,073 NM (64)%
Consumer Finance Japan (CFJ)—NIR $ 726 $ 1,135 $ 1,566 (36)% (28)%
Consumer Banking, excluding CFJ—NIR 21,206 19,606 17,420 8 13
CFJ—operating expenses $ 371 $ 576 $ 713 (36)% (19)%
Consumer Banking, excluding CFJ—operating expenses 26,282 15,740 13,827 67 14
CFJ—provision for loan losses and for benefits and claims $ 1,336 $ 1,421 $ 1,118 (6)% 27%
Consumer Banking, excluding CFJ—
provision for loan losses and for benefits and claims 18,286 9,340 2,707 96 NM
CFJ—net income (loss) $ 146 $ (520) $ (133) NM NM
Consumer Banking, excluding CFJ—net income (loss) (12,426) 2,677 6,206 NM (57)%
Average assets (in billions of dollars) $ 547 $ 572 $ 467 (4)% 22%
Return on assets (2.24)% 0.38% 1.30%
Key indicators (in billions of dollars)
Average loans $ 395.3 $ 380.0 $ 330.1 4 15
Average deposits $ 287.7 $ 276.4 $ 236.7 4 17
Accounts (in millions) 78.5 79.5 69.7 (1) 14
Branches 7,730 8,247 7,826 (6) 5
NM Not meaningful
2008 vs. 2007
Consumer Banking revenue declined 3%. Net interest revenue was 6%
higher than the prior year, as growth of 4% in average loans and 4% in deposits was partially offset by a Net interest revenue decline in Japan Consumer Finance (CFJ). Non-interest revenue declined 23%, primarily due to a 27% decline in investment sales and a loss from the mark-to-market on the MSR asset and related hedge in North America.
In North America, total revenues decreased 2%. Net interest revenue was 9% higher than the prior year, primarily due to increased average loans and deposits, up 3% and 2%, respectively, and a shift towards higher yielding products. Non-interest revenue declined 29%, mainly due to lower mortgage servicing revenue. Excluding the impact from the mortgage servicing revenue, total revenues increased 4%. Revenues in EMEA increased by 4%, driven by growth in average loans and deposits, improved net interest margin and the impact of the Egg acquisition. Revenues in Latin America
were down 5%, mainly due to spread compression and lower revenues from the Chile divestiture not being fully offset by average loan and deposit growth of 14% and 4%, respectively. Asia revenues decreased 6%, as growth in average loans and deposits of 5% and 4%, respectively, was offset by a 36% total revenue decline in CFJ and lower investment product sales. Excluding CFJ, revenues increased 2%.
Operating expenses growth of 63% was primarily driven by a $9.568
billion goodwill impairment charge, higher business volumes, increased credit management costs, an $877 million repositioning/restructuring charge and prior-year acquisitions, partially offset by a $221 million benefit related to a legal vehicle repositioning in Mexico, lower incentive
compensation expenses and the absence of a prior-year write-down of customer intangibles and fixed assets in CFJ.
Expenses were up 70% in North America, primarily driven by a $5.107 billion goodwill impairment charge, a $530 million repositioning/ restructuring charge, higher collection and credit-related expenses and acquisitions. Excluding the goodwill impairment charge and the repositioning/restructuring charge, expenses increased 1%. EMEA expenses were up 21% primarily due to the impact of a $203 million goodwill impairment charge, repositioning/restructuring charges in 2008, partially offset by a decline in incentive compensation and the benefits from re- engineering efforts. Expenses increased $4.166 billion in Latin America primarily driven by a $4.258 billion goodwill impairment charge, prior-year acquisitions, volume growth and repositioning/restructuring charges in 2008. Partially offsetting the increase was a $221 million benefit related to a legal vehicle repositioning in Mexico. The 1% growth in Asia was primarily driven by the acquisition of the Bank of Overseas Chinese and higher volumes, partially offset by lower expenses in CFJ.
Provisions for credit losses and for benefits and claims increased $8.9
billion, reflecting significantly higher net credit losses in North America, Mexico and India, as well as a $2.6 billion incremental pretax charge to increase loan loss reserves, primarily in North America. The growth of the loan portfolio also contributed to the increase in credit costs.
Credit costs in North America increased by $7.3 billion, due to a $5.1 billion increase in net credit losses and a $2.2 billion increase in loan loss reserve builds across all portfolios. Higher credit costs reflected a weakening of leading credit indicators, including higher delinquencies in first and second mortgages, auto and unsecured personal loans, as well as trends in the macro-economic environment, including the housing market downturn. The net credit loss ratio increased 168 bps to 2.72%. EMEA credit costs increased 33% reflecting deterioration in Western European countries as well as net credit losses from the Egg acquisition. The net credit loss ratio increased 57 bps to 2.93%. In Latin America, credit costs increased $394 million, primarily due to higher net credit losses in Mexico. Credit costs in
Asia increased 27% primarily driven by a $234 million incremental pretax
charge to increase loan loss reserves, increased credit costs especially in India, and portfolio growth.
Asia results include a tax benefit of $850 million in the fourth quarter of
2008, mainly due to the restructuring of legal vehicles in Japan. 2007 vs. 2006
Net interest revenue was 9% higher than the prior year as growth in average
loans and deposits of 15% and 17% respectively, as well as the impact of acquisitions, was partially offset by a decrease in net interest margin.
Non-interest revenue increased 14%, primarily due to a 17% increase in
investment product sales and the impact of foreign currency translation. In North America, total revenues increased 9%. Net interest revenue was 9% higher than the prior year, as growth in average loans and deposits, up 14% and 16%, respectively, was partially offset by a decrease in net interest margin. Net interest margin declined mainly due to an increase in the cost of funding driven by a shift to higher cost Direct Bank and time deposits.
Non-interest revenue increased 10%, mainly due to the impact of the
acquisition of ABN AMRO in the first quarter of 2007, higher gains on sales of mortgage loans and growth in net servicing revenues. This increase was partially offset by the absence of $163 million pretax gain from the sale of upstate New York branches in the prior-year period. In EMEA, revenues increased by 21% to $2.5 billion, driven by strong growth in average loans and deposits and improved net interest margin and the impact of the Egg
acquisition. Revenues in Latin America increased 12% versus the prior year driven by growth in average loans and deposits of 29% and 14%, respectively, partially offset by the absence of a prior-year gain on the sale of Avantel of $234 million. Asia revenues increased 9%, as growth in average loans and deposits of 13% and 8%, respectively, and higher investment product sales were offset by a 27% total revenue decline in CFJ. Results in 2007 include a $261 million pretax charge in CFJ to increase reserves for estimated losses due to customer settlements.
Consumer Banking Operating expenses increased 12%, reflecting the
impact of acquisitions, volume growth across all regions, and increased investment spending due to new branch openings. During 2007, 712 Retail Banking and Consumer Finance branches were opened or acquired. Expenses also included a $152 million write-down of customer intangibles and fixed assets in CFJ recorded in the third quarter of 2007. The increase in expenses was partially offset by savings from the structural expense initiatives announced in April 2007 and the absence of the charge related to the initial adoption of SFAS 123(R) in the first quarter of 2006.
North America expenses were up 12%, primarily driven by the ABN AMRO
integration, higher collection costs, higher volume-related expenses, and increased investment spending due to 202 new branch openings in 2007 (110 in CitiFinancial and 92 in Citibank, N.A.). Expense growth in 2007 was favorably affected by the absence of the charge related to the initial adoption of SFAS 123(R) in the prior-year period. EMEA expenses were up 20% primarily due to business growth, acquisitions and FX translation. Expenses in Latin America increased 11%, primarily driven by higher business volumes and the impact of acquisitions. Asia expenses increased 9%, primarily due to increased investment spending including expansion of the branch network, partially offset by savings from the structural expense initiatives.
Provisions for credit losses and for benefits and claims increased $6.9
billion reflecting a $5.1 billion incremental pretax charge to increase loan loss reserves, primarily in North America, and significantly higher net credit losses of $1.8 billion. The increase in loan loss reserves reflects a change in estimate of loan losses inherent in the loan portfolio but not yet visible in delinquency statistics.
Credit costs in North America increased by $5.6 billion, due to $1.2 billion higher net credit losses and $4.4 billion higher loan loss reserve build. Higher credit costs reflected a weakening of leading credit indicators including delinquencies in first and second mortgages and deterioration in the housing market, a downturn in other economic trends including unemployment and GDP affecting all other portfolios and a change in estimate of loan losses inherent in the portfolio but not yet visible in delinquency statistics. The increase in Provision for loan losses also reflects the absence of loan loss reserve releases recorded in the prior year. The net credit loss ratio increased 32 bps to 1.04%. Higher credit costs in EMEA were due to an increase in net credit losses, up 56%, and an $174 million incremental net charge to increase loan loss reserves. The net credit loss ratio increased 28 bps to 2.36%. Credit costs in Latin America increased
substantially driven by a $151 million incremental net charge to increase loan loss reserves and higher net credit losses. The net credit loss ratio increased 46 bps to 1.90%. Credit costs in Asia increased 55% primarily driven by higher net credit losses, primarily in CFJ, and a $317 million incremental pretax charge to increase loan loss reserves, as well as increased credit costs especially in India.
OUTLOOK FOR 2009
During 2009, Citigroup’s global consumer business is expected to operate in a continued challenging economic and credit environment. Revenues will likely continue to be negatively affected by the significant U.S. and global economic downturn that has impacted customer demand and credit performance. See “Outlook for 2009” on page 7 and “Risk Factors” on page 47.
In North America, the continuing deterioration in the U.S. housing market could continue to adversely impact the cost of credit in the first mortgage and second mortgage portfolios. With higher levels of unemployment and bankruptcy filings in 2009, net credit losses, delinquencies and defaults are expected to continue to increase. In EMEA, 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. Investment sales and assets under
management are expected to be lower due to weak capital markets and lower client confidence. In Latin America, revenues, credit costs and business drivers are expected to be affected by global economic conditions, including the impact of foreign currency translation, unemployment rates and political and regulatory developments in the region. In Japan, the Company will continue to actively monitor developments in customer refund claims and defaults, political developments and the way courts view grey zone claims, refunds and defaults, the outcome of which cannot be predicted.
Citigroup’s management and reporting realignment will result in the restructuring of these businesses, effective for reporting purposes in the second quarter of 2009, resulting in a focus on the Company’s core assets within the regional consumer and commercial banking businesses. The realignment will also allow the Company to seek to realize value from its other local consumer finance businesses. The Company also anticipates deploying TARP funds received from the U.S. government by making mortgage loans directly to homebuyers and supporting the housing market through the purchase of prime residential mortgages and mortgage-backed securities in the secondary market, and providing loans to consumers and businesses facing liquidity problems. See “TARP and Other Regulatory Programs – Implementation and Management of TARP Programs” on page 44.