SecProbe.io

CORRESP
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  John C. Gerspach

  Chief Financial Officer

  Citigroup Inc.

  399 Park Avenue

  New York, NY 10022

April 13, 2010

VIA EDGAR CORRESPONDENCE

John P. Nolan

Securities and Exchange Commission

100 F Street, NE

Mail Stop 4561

Washington, DC 20549-7553

Dear Mr. Nolan:

This letter sets forth the responses of Citigroup Inc.
(“Citigroup,” “Citi” or “we”) to the comments of the staff (the “Staff”) of the
Securities and Exchange Commission (the “SEC”) contained in the Staff’s letter
dated March 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.

With regard
to your repurchase agreements, please tell us whether you account for any of
those agreements as sales for accounting purposes in your financial statements.

Citi has accounted for certain
repurchase agreements as sales for accounting purposes, resulting in a decrease
to the assets on our balance sheet, as summarized below.

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If you do, we
ask that you:

·                  Quantify the amount of
repurchase agreements qualifying for sales accounting at each quarterly balance
sheet date for each of the past three years.

·                  Quantify the average
quarterly balance of repurchase agreements qualifying for sales accounting for
each of the past three years.

  Balance
  Sheet

  Date

  Repurchase

  Agreements

  Accounted for

  as Sales at

  Period End

  ($BN)

  Average Quarterly

  Balance of

  Repurchase

  Agreements

  Accounted for as

  Sales ($BN)

  Total

  Balance

  Sheet

  Assets

  ($BN)

  Repurchase

  Agreements

  Accounted for as

  Sales at Period End

  / Total Balance

  Sheet Assets (%)

  December 31, 2009

  12.0

  9.9

  1,857

  0.6

  %

  September 30, 2009

  17.5

  9.4

  1,889

  0.9

  %

  June 30, 2009

  10.0

  9.1

  1,849

  0.5

  %

  March 31, 2009

  9.6

  11.9

  1,823

  0.5

  %

  December 31, 2008

  10.5

  7.0

  1,938

  0.5

  %

  September 30, 2008

  7.1

  6.5

  2,050

  0.3

  %

  June 30, 2008

  6.0

  6.1

  2,100

  0.3

  %

  March 31, 2008

  8.1

  7.7

  2,200

  0.4

  %

  December 31, 2007

  9.0

  7.7

  2,188

  0.4

  %

  September 30, 2007

  5.9

  11.5

  2,358

  0.3

  %

  June 30, 2007

  10.1

  10.5

  2,221

  0.5

  %

  March 31, 2007

  9.5

  8.8

  2,021

  0.5

  %

·                  Describe all the
differences in transaction terms that result in certain of your repurchase
agreements qualifying as sales versus collateralized financings.

Consistent with the relevant
accounting literature (discussed in more detail below), the repurchase
agreements qualifying as sales were structured like ordinary repurchase
agreements in all respects, including standard initial margin (e.g., 102%),
except that Citi as transferor had no right, or a limited right under specific
circumstances, to demand daily maintenance margin.  As discussed in more detail below, repurchase
agreements qualifying for sales accounting were primarily executed in Citi’s
Japanese broker-dealer (Citigroup Global Markets Japan), Citi’s U.K.
broker-dealers (Citigroup Global Markets Limited and Citigroup Global Markets
UK Equity Limited), and to a lesser extent in Citibank, N.A. in North
America.  A small amount of repurchase
agreements qualifying as sales were executed in Central and Eastern Europe and
Latin American subsidiaries, where there was no daily maintenance margin due to
local customs or capabilities.

With respect to the repurchase
agreements executed in Citi’s Japanese broker-dealer, all repurchase agreements
qualifying as sales had no right to demand daily maintenance margin. A minority
of those repurchase transactions were entered into with local Japanese
corporate or central bank customers that either by custom or due to limited
capability did not agree to any daily maintenance margin.

Repurchase agreements executed
in Citi’s U.K. broker-dealers and Citibank, N.A. provided that daily
maintenance margin could only be called once the ratio of the fair value of the
securities

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transferred to the cash
received exceeded 110%.  At that point,
maintenance margin could be called to reinstate the ratio to 110%.

Due to the recent attention placed on the accounting
for repurchase agreements, Citi engaged in a review of the actual margining
practices surrounding these transactions.
In connection with this review effort, we have discovered that, in
practice, the limited margining rights described above for our U.K.
broker-dealer repurchase agreements are not currently being consistently applied
to our U.K. broker-dealer transactions accounted for as sales.  We believe a process defect may have arisen
during the automation of internal Citi margining systems and the restructuring
of our Operations Department resulting in Citi’s unintentionally collecting
variation margin on certain of these transactions.  Certain aspects of our review are still in
progress and we have not yet identified the date when our actual margining
practices changed.  We believe that the
act of Citi’s collecting variation margin has effectively voided the original
restricted margining provisions such that Citi is now entitled to collect
standard variation margin.  Since it is
apparent that the restricted margining practice may not have been applied
during the last three years to certain of those U.K.-based trades, sale
accounting treatment may not have been appropriate for those trades during that
time.  Based on this information, we have
concluded that all repurchase transactions executed by our U.K. broker-dealers
at March 31, 2010 should be accounted for as financings in our first
quarter 2010 financial statements.

The amount of repurchase agreements accounted for as
sales by the U.K. broker-dealers during 2007 to 2009 did not exceed $9.2
billion at any quarter-end date (which is less than half a percent of Citigroup’s
total assets).  During that same
three-year time period, the average quarter-end balance of repurchase
agreements accounted for as sales by the U.K. broker-dealer was $5.4 billion.  These amounts did not have a material impact
to the balance sheet during any period.
Furthermore, recording these repurchase transactions as sales rather
than financings did not affect the recognition of earnings, because all of the
securities were accounted for as trading account assets and Citi’s U.K.
broker-dealers account for all repurchase agreements accounted for as
financings under the fair value option.

·                  Provide a detailed
analysis supporting your use of sales accounting for your repurchase
agreements.

Despite the recent findings
related to our U.K. broker-dealers, the following is the accounting analysis we
applied during 2007 to 2009 to account for the relevant repurchase agreements
as sales of the transferred securities.

Paragraph 9 of FASB Statement
No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (FAS
140)(1), requires a transfer of assets to be accounted for as a sale if the
following conditions are met:

a.               The transferred assets have
been legally isolated from the transferor — put presumptively beyond the reach
of the transferor and its creditors, even in bankruptcy or other receivership.

Analysis
— To support the conclusion that repurchase agreements
executed by Citi’s U.K. broker-dealers, Citibank, N.A., and Citi’s Japanese
broker-dealer achieved legal isolation of

(1)  Because our
response covers the periods 2007-2009, we provide references to the relevant
accounting guidance prior to the effective date of the FASB Codification.  After July 1, 2009, the relevant references
would be those in the FASB Codification.

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the transferred assets, in
addition to the inclusion of the limited right to demand daily maintenance
margin, Citi received “would-level” true sale opinions from the external law
firms Allen & Overy (U.K.); Milbank, Tweed, Hadley & McCloy
LLP (Citibank, N.A.); and Nagashima Ohno & Tsunematsu (Japan).

b.              Each transferee has the right
to pledge or exchange the assets it received, and no condition both constrains
the transferee from taking advantage of its right to pledge or exchange and
provides more than a trivial benefit to the transferor.

Analysis
— The repurchase agreements accounted for as sales
involved readily obtainable, liquid securities, such as government bonds and
high-quality corporate bonds.  Under the
terms of the repurchase agreement, the transferee had the right to pledge or
exchange the securities at its discretion.
Paragraph 32 of FAS 140 confirms that “Freestanding rights to reacquire
transferred assets that are readily obtainable presumptively do not constrain
the transferee from exchanging or pledging them and thus do not preclude sale
accounting under paragraph 9(b).”

c.               The transferor does not
maintain effective control over the transferred assets through either
(1) an agreement that both entitles and obligates the transferor to
repurchase or redeem them before their maturity or (2) the ability to
unilaterally cause the holder to return specific assets, other than through a
cleanup call.

Analysis
— For condition 9(c)(1), paragraphs 47-49 and 218 of
FAS 140, and Question 45 of the FASB Staff Implementation Guide to FAS 140,
provide additional guidance.  For a
repurchase agreement to result in the transferor’s maintaining effective
control over the transferred assets, all of the following conditions must be
met:

a.               The assets to be repurchased
or redeemed are the same or substantially the same as those transferred;

b.              The transferor is able to
repurchase or redeem them on substantially the agreed terms, even in the event
of default by the transferee;

c.               The agreement is to repurchase
or redeem them before maturity, at a fixed or determinable price; and

d.              The agreement is entered into
concurrently with the transfer.

Most of the repurchase
agreements accounted for as sales met conditions a., c., and d. above.  The repurchase agreements accounted for as
sales did not meet condition b., as discussed in more detail below.

Paragraph 218 of FAS 140
states:

The Board also decided that
the transferor’s right to repurchase is not assured unless it is protected by
obtaining collateral sufficient to fund substantially all of the cost of
purchasing identical replacement securities during the term of the contract so
that it has received the means to replace the assets even if the transferee
defaults. Judgment is needed to interpret the term substantially all (emphasis in original) and other aspects
of the criterion that the terms of a repurchase agreement do not maintain
effective control over the transferred asset. However, arrangements to
repurchase or lend readily obtainable securities, typically with as much as 98
percent collateralization (for entities agreeing to repurchase) or as little as 102 percent
overcollateralization (for securities lenders), valued daily and adjusted up or
down frequently for changes in the market price of the security transferred and
with clear powers to use that collateral quickly in the event of default,
typically fall clearly within that

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guideline. The Board believes
that other collateral arrangements typically fall well outside that guideline.

Question 45 of the FASB Staff
Implementation Guide to FAS 140 states:

Q —
Paragraph 49 states that “to be able to repurchase or redeem assets on
substantially the agreed terms, even in the event of default by the transferee,
a transferor must at all times during the contract term have obtained cash or
other collateral sufficient to fund substantially all of the cost of purchasing
replacement assets from others.” Would the requirement of paragraph
9(c)(1) preclude sale accounting by the transferor if, under the
arrangement, the transferor is substantially overcollateralized at the date of
transfer even though the arrangement does not provide for frequent adjustments
to the amount of collateral maintained by the transferor?

A —
No. A mechanism to ensure that adequate collateral is maintained must
exist even in transactions that are substantially overcollateralized (for
example, “deep discount” and “haircut” transactions) for paragraph
9(c)(1) to preclude sale accounting for those transactions. Even if the
probability of ever holding inadequate collateral appears remote, as explained
in paragraph 49, the requirement of paragraph 9(c)(1) would not (emphasis in original) be met and sale
accounting by the transferor would not be precluded unless the arrangement
assures, by contract or custom, that the collateral is sufficient “at all times
. . . to fund substantially all of the cost of purchasing replacement assets
from others.”

Statement 140 does not
prescribe that a specific contractual term, such as a margining provision, must
be present to meet the sufficient collateral requirement. Instead, Statement
140 prescribes, as explained in paragraph 218, what the effect of the
arrangement must be — that the transferor “is protected by obtaining collateral
sufficient to fund substantially all of the cost of purchasing identical
replacement securities during the term of the contract so that it has received
the means to replace the assets even if the transferee defaults.” Simply
excluding a margining provision from a repurchase agreement does not change the
accounting that results if the maintenance of sufficient collateral is
otherwise assured. For example, a contractual provision that a repurchase
agreement is immediately terminated should the value of the collateral become
insufficient to fund substantially all of the cost of purchasing replacement
assets would satisfy the requirement in paragraph 49.

Based on the guidance, Citi
did not maintain effective control over the transferred securities under
paragraph 9(c)(1), because there was no mechanism in the repurchase agreements
that ensured Citi would be able to repurchase or redeem the securities on
substantially the agreed terms, even in the event of default by the
transferee.  Citi did not maintain
effective control under paragraph 9(c)(2) because the assets were readily
obtainable, as discussed above and confirmed by paragraph 32 of FAS 140.

Because all of the conditions
in paragraph 9 of FAS 140 were met, FAS 140 required the relevant repurchase
agreements to be accounted for as sales of the transferred securities.

·                  Describe the business
reasons for structuring the repurchase agreements as sales transactions versus
collateralized financings. To the extent the amounts accounted for as sales
transactions have varied over the past three years, discuss the reasons for
quarterly changes in the amounts qualifying for sales accounting.

The Fixed Income Finance and
Equity Finance Trading Desks within Citi’s Institutional Clients Group (“ICG”)
and its predecessor organizations structured certain repurchase transactions to
achieve sales accounting treatment and executed repurchase transactions that
were required to be

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accounted for as sales based
on restricted maintenance margin arrangements or capabilities and/or local
customs.  The repurchase transactions
were undertaken at a regional level predominantly in the U.K. and Japan to
assist the markets businesses in complying with internal limits on the amount
of the U.S. GAAP balance sheet made available to the global trading desks.

Refer to the summary
statistics above for the quarterly balance sheet and quarterly average amounts
of repurchase agreements qualifying for sales accounting resulting in a
decrease to assets on Citi’s balance sheet.
The amounts representing repurchase agreements accounted for as sales
were relatively stable throughout the period presented.

·                  Describe how your use of sales
accounting for certain of your repurchase agreements impacts