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CITI

FOIA Confidential Treatment Requested by Citigroup Inc.

John C. Gerspach

Chief Financial Officer

Citigroup Inc.

399 Park Avenue

New York, NY 10022

February 9, 2010

VIA EDGAR CORRESPONDENCE

Kevin W. Vaughn

Securities and Exchange
Commission

100 F Street, NE

Mail Stop 4561

Washington, DC 20549-7553

Re:                Citigroup Inc.

Form 8-K filed January 19, 2010

File No. 001-09924

Dear Mr. Vaughn:

Enhancement
of the overall disclosures in filings by Citigroup Inc. (“Citigroup,” the “Company,”
or “we”) is an objective that we share with the staff (the “Staff”) of the
Securities and Exchange Commission (the “SEC”) and one that we consider in all
our filings. This letter sets forth the responses of Citigroup to the comments
of the Staff contained in the Staff’s letter dated January 29, 2010.

For
your convenience, the text of the Staff’s comments is set forth in bold below,
followed in each case by our response.

Form 8-K filed January 19, 2010

1.                                      We note your disclosure on page five
of your release filed as part of Exhibit 99.1 that Securities &
Banking revenues included a negative credit valuation adjustment (CVA) of $1.9
billion, of which $840 million represented the cumulative impact of a
correction of an error in calculating the CVA on your fair value option debt in
prior periods. Please respond to the following:

a. Tell us how the error was discovered and
discuss the specific errors related to the calculation of CVA.

The Company determined
that there was an error in the process used to value certain structured note
liabilities for which the Company has elected the fair value option (FVO).
Because of this process error, an own-credit valuation adjustment (CVA) was
being improperly included at the time of issuance of FVO debt, rather than reflecting
only changes in the Company’s credit spreads post-issuance. The cumulative
effect of this error from January 1, 2007 (the date that FAS 157, now
incorporated into ASC Topic 820, requiring the valuation of own-credit for FVO
liabilities, was adopted) through September 30, 2009 was to overstate
income and retained earnings by $518 million ($840 million on a pretax basis).

CITI B-1

CITI

FOIA Confidential Treatment Requested by Citigroup Inc.

The error was discovered
in the course of research into questions raised in considering the attribution
to the business units at desk level of CVA adjustments on “own credit” for
structured notes issued by the Company. Own-credit CVA had been held at
top-level administrative units within the reportable business segments, but not
attached to the individual desks responsible for the underlying transactions.
The attribution to the business unit desks is being done as part of a project
to improve the internal transparency of and accountability for “own credit”
CVA. The error applies only to certain structured notes for which the FVO has
been elected.

Structured note transactions
involve the issuance by Citigroup to an independent counterparty of a structured
note paying Citigroup’s current market interest rate plus or minus the return
on an underlying referenced security or index. FAS 155 (now incorporated into
ASC Topic 815) changed the accounting for these structured notes in that,
rather than having to bifurcate the derivative embedded in the notes and mark
it to market separately, the entire hybrid instrument could now be marked to
market through earnings if the FVO were elected. The requirement to calculate
and record CVA on one’s “own credit” relative to FVO liabilities commenced with
the adoption of FAS 157 (now incorporated into ASC Topic 820) on January 1,
2007, at a time when Citigroup’s credit spread was quite narrow.

Under this new accounting
election, the process used to value the structured note liabilities was to
calculate and record own credit CVA separately. However, because of a process
error, an incorrect reference was being used consistently as the source of the
valuation which resulted in recording own credit CVA in earnings at the time of
issuance of the notes, rather than reflecting only changes in the Company’s
credit spreads post-issuance. The amount of the error was dependent upon the
size of the Company’s credit spreads and the volume of net new issuances.
Consequently, the size of the error increased as Citigroup’s credit spreads
widened and the issuance of notes increased substantially in the 2008/2009
timeframe. The error was self-correcting, but only by time decay to maturity or
at the time of repurchase of the notes by Citigroup.

The error was not apparent in
reviewing previous quarters since the magnitude and direction of CVA
adjustments were in line with credit spread movements and net issuance volume
in each of those quarters.

b. Tell us whether you have a similar CVA calculation
error related to your other assets and liabilities that are also carried at
fair value, such as your derivatives portfolio.

The process used to
calculate the value of the Company’s FVO debt, including CVA, is distinct and
separate from the process used to calculate the fair value of other assets and
liabilities. We have confirmed that the error in the process and resultant CVA
calculation error related to FVO debt does not exist for other assets and
liabilities carried at fair value, including the derivatives portfolio.

c. Discuss any changes made to your internal
controls over financial reporting to detect or prevent these types of errors
from occurring in the future.

In addition to correcting the error in the process
that caused the CVA error on FVO debt, the Company is also strengthening many
of the systems and controls surrounding the CVA calculation. Over the course of
2009 a project was implemented which migrated the CVA calculation into a secure
technology environment and automated key processes and reporting utilities in
order to reduce manually intensive processes and controls. As of December 31,
2009, 90% of FVO debt transactions have been automated on a system that feeds
directly into the CVA calculation with the remaining 10% scheduled to be
completed in the first quarter of 2010. In addition, a web-based interface has
been implemented to allow for more timely distribution, and to enhance the
efficiency and frequency of analytical review of changes in exposures and CVA
balances. For 2010, a project has been established to move the CVA calculation
from its current environment to business models which will incorporate the
modeling of FVO debt transactions. This will facilitate the recording of
own-credit CVA at the business unit level to improve transparency of and
accountability for CVA balances. An outside accounting firm will be engaged in
2010 to review the overall CVA process and document the end-to-end CVA control
environment ensuring transparency for internal and external reviewers.

CITI B-2

CITI

FOIA
Confidential Treatment Requested by Citigroup Inc.

d. Provide us with your materiality analysis
supporting your conclusion that the errors and the related cumulative error
correction in the fourth quarter of 2009 was not material to any period.

The following is a
summary of the materiality analysis we performed upon discovery of the FVO CVA
error. In determining the materiality of the impact of the error on Citigroup’s
financial statements, pursuant to the guidance provided by the SEC, we analyzed
the error using both quantitative and qualitative factors, and applied
appropriate judgment.

[***]

In accordance with the
SEC guidance, we also considered the following qualitative factors in
concluding that the amount of misstatement was not material to our financial
statements:

·                  It is unlikely that a reasonable person
relying on the financial report would have been influenced by the inclusion or
correction of the CVA misstatement, because in analyzing earnings most research
analysts exclude own-credit CVA when evaluating the financial statements of
financial institutions.

·                  The error does not mask a change in
earnings, revenues or margin trends, because Citi has experienced significant
volatility in its earnings over the periods affected.

·                  The analysts’ consensus expectations for
Citigroup’s earnings have consistently been greatly divergent from our reported
earnings.  In no quarter or year would
the impact of the errors on EPS have been large enough to cause reported
earnings to match the analysts’ consensuses.

·                  The inclusion of the inception spread in
CVA, and other unrecorded errors, would not have changed income available to
common shareholders into a loss or a loss into income in any of the quarters or
years impacted by the error.

·                  Capital ratios were not significantly
impacted by the error. The impact in any given period of correcting the CVA
error on Tier 1 capital ratio would be [***] bps or less, the impact on other
regulatory capital ratios is similarly immaterial in each period.

·                  The error did not impact compliance with
loan covenants or other contractual requirements.

·                  The error did not have the effect of
increasing management’s bonuses or other forms of incentive compensation as CVA
is excluded from incentive compensation calculations.

·                  There was no concealment of an unlawful
transaction involved.

[***]
The following information has been redacted in accordance with Citigroup’s
request for confidential treatment.

CITI B-3

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FOIA
Confidential Treatment Requested by Citigroup Inc.

·                  Because Citigroup stock is not trading on
earnings multiples, and has not for some time, the error would not have caused
a significant negative reaction (Citigroup stock has been trading on a
percentage of book value).

The error was not intentional, but rather was a error
in the process due to an unintentional oversight.

  SAB 99

  Amounts in thousands (except
  EPS)

  FY 2007

  1Q 2008

  2Q 2008

  3Q 2008

  4Q 2008

  FY 2008

  Net Income, as reported

  $

  3,617,000

  $

  (5,111,000

  )

  $

  (2,495,000

  )

  $

  (2,815,000

  )

  $

  (17,263,000

  )

  $

  (27,684,000

  )

  CVA Error (After Tax)

  (76,640

  )

  (4,430

  )

  (35,716

  )

  (59,756

  )

  (26,976

  )

  (126,878

  )

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  EPS, as reported

  $

  0.67

  $

  (1.03

  )

  $

  (0.55

  )

  $

  (0.61

  )

  $

  (3.40

  )

  $

  (5.63

  )

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  SAB 99

  Amounts in thousands (except
  EPS)

  1Q 2009

  2Q 2009

  3Q 2009

  Net Income, as reported

  $

  1,593,000

  $

  4,279,000

  $

  101,000

  CVA Error (After Tax)

  (122,236

  )

  (71,281

  )

  (121,223

  )

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  EPS, as reported

  $

  (0.18

  )

  $

  0.49

  $

  (0.27

  )

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  SAB
  99 & SAB 108

  Amounts in thousands (except
  EPS)

  4Q 2009

  2009

  2009 w/o TARP

  Repayment

  Net Income, as reported

  $

  (7,579,000

  )

  $

  (1,605,789

  )

  $

  4,774,211

  CVA Error (After Tax)

  518,258

  203,518

  203,518

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  EPS, as reported

  $

  (0.33

  )

  $

  (0.80

  )

  N/A

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

  [***]

[***]
The following information has been redacted in accordance with Citigroup’s
request for confidential treatment.

CITI B-4

CITI

FOIA
Confidential Treatment Requested by Citigroup Inc.

e. In future filings, including your 2009 Form 10-K,
please expand your discussion of the error to provide more information on the
specific cause and nature of the calculation errors.

The following is the draft of our proposed disclosure
we intend to include in Citigroup’s 2009 Form 10-K.

CVA
Accounting Misstatement

The Company determined
that an error existed in the process used to value certain liabilities for
which the Company elected the fair value option (FVO). The error related to a
calculation intended to measure the impact on the liability’s fair value
attributable to Citigroup’s credit spreads. Because of the error in the
process, an own-credit valuation adjustment was being improperly reported at
the time of issuance of new FVO debt, rather than reflecting only changes in
the Company’s credit spread post-issuance. The error was self-correcting but
only by time decay to maturity or at the time of repurchase of the debt by
Citigroup (See Note XX for a description of own-credit valuation adjustments).
The cumulative effect of this error from January 1, 2007 (the date that
FAS 157 (ASC Topic 820), requiring the valuation of own-credit for FVO liabilities,
was adopted) through December 31, 2008 was to overstate income and
retained earnings by $204 million ($330 million on a pretax basis). The impact
of this adjustment was determined not to be material to the Company’s results
of operations and financial position for any previously reported period.
Consequently, in the accompanying financial statements, the cumulative effect
through December 31, 2008 is recorded in 2009.

The table below
summarizes the previously reported impact of CVA income for debt on which the
FVO was elected and the related adjustments to correct the process error for
the impacted reporting periods.

  In
  millions of dollars

  2008

  2007

  Pretax
  gain (loss) from the change in the CVA reserve on FVO debt that would have
  been recorded in the income statement:

  Previously
  reported

  $

  4,558

  $

  888

  Corrected
  amount adjusted for removal of error

  4,352

  764

  Difference

  $

  206

  $

  124

  In
  millions of dollars

  2008

  2007

  Year-end
  CVA reserve reported as a Contra-liability on FVO debt:

  Previously
  reported

  [***]

  [***]

  Corrected
  amount adjusted for removal of error

  [***]

  [***]

  Difference

  [***]

  [***]

In
addition to the disclosure made in the Form 8-K filed on January 19th, in which we included the
impact of the CVA errors on the earnings of quarterly period affected, we will
also disclose the impact of the CVA error on earnings of the quarterly periods
affected in the Selected Quarterly Data (unaudited) footnote in our 2009 annual
report on Form 10-K. The cumulative effect of this error from January 1,
2007 (the date that FAS 157 (ASC Topic 820), requiring the valuation of
own-credit for FVO liabilities, was adopted) through September 30, 2009
was to overstate income and retained earnings by $518 million ($840 million on
a pretax basis).

[***] The following information has been redacted in
accordance with Citigroup’s request for confidential treatment.

CITI B-5

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FOIA
Confidential Treatment Requested by Citigroup Inc.

2.                                      We note your disclosure on page three
of your release filed as part of Exhibit 99.1 about the number of
modifications you have performed during the past year. Please tell us and discuss
in future filings how modifications impact the timing of the recording the
allowance for loan losses. For example, discuss whether the largest effect of
the loan modification is recorded during the period of the modification or
whether the modification has largely been reserved for under your normal
reserving methodology. Additionally, discuss how the high level of re-defaults
of the loan modi