SecProbe.io

CORRESP
1
filename1.htm

Correspondence Letter

 [Letterhead of Citigroup Inc.]

 FOIA CONFIDENTIAL TREATMENT REQUESTED BY CITIGROUP INC.

 FOR CERTAIN PORTIONS OF THIS
LETTER PURSUANT TO RULE 83.

 April 24, 2009

 VIA
EDGAR CORRESPONDENCE

 Kevin W. Vaughn

 Branch Chief

 Securities and Exchange Commission

 100 F Street, NE

 Mail Stop 4561

 Washington, DC 20549-7553

Re:
Citigroup Inc.

 Form 10-K for the Fiscal
Year Ended December 31, 2008

 (Filed February 27, 2009, File No. 001-09924)

 Current Report on Form 8-K

 (Furnished March 10, 2009, 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 April 3, 2009. Please note that the version of this letter filed via EDGAR omits confidential information included in the unredacted version of the letter that was delivered to the Staff and the
redactions are denoted in the EDGAR-filed version by bracketed asterisks (“[***]”).

 Citigroup will file amendments to its
(a) Registration Statement on Form S-4 filed on March 19, 2009, (b) Preliminary Proxy Statement (Public Preferred Proxy Statement) filed on March 19, 2009 and (c) Preliminary Proxy Statement (Common Stock Proxy Statement) filed on
March 19, 2009 at a later date, and will respond to the Staff’s comments on those documents at that time.

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

 Form 10-K for the Fiscal Year Ended December 31, 2008

 TARP and Other Regulatory Programs, page 44

42.
For both the October 2008 and the December 2008 issuances of preferred stock, we note that you allocated the proceeds between the preferred stock and warrants based on a relative
fair value basis. Please tell us and revise future filings to disclose the specific methods and assumptions used to determine the fair value for the preferred stock and the warrants for the purposes of allocating the proceeds.

 For both the October 2008 and December 2008 issuances under the TARP, the proceeds were allocated between
the preferred stock and warrants on a relative fair value basis. The fair value for the preferred stock was calculated using a discounted cash flow approach. The cash flows were based on the stated dividend rate on the preferred stock. The discount
rate was selected from the range of observable yield to maturities based on the secondary trading prices for similar instruments issued by Citigroup. The fair value for the warrants was calculated using the Black-Scholes option pricing model. The
valuation was based on the Citigroup stock price, stock volatility, dividend yield, and the risk free rate on the measurement date for both the issuances. Citigroup will revise its future filings to disclose the methods and assumptions used for the
purpose of allocating the proceeds.

43.
We note your table on page 45 summarizing the assets covered under the loss sharing agreement. In order to give the reader a better understanding of the risk level of the covered
assets, please address the following:

a.
In future filings, please consider revising your disclosures related to the covered assets to discuss the quality of those assets. For example, quantify the amount of impaired or
nonperforming loans, the amount of subprime or Alt-A loans, and the amount of below investment grade securities.

 We advise the Staff that the Ring-Fenced Assets (RFA) Portfolio is still undergoing the confirmatory process with the USG. Citigroup will revise future disclosures once this confirmatory process has been finalized, and it has consulted with
the respective USG regulatory bodies; however, it is not currently expected that this process will be completed by the time of issuance of the Company’s first quarter Form 10-Q.

 The Company has included TARP and RFA disclosures in the section “TARP and Other Regulatory Programs” on pages
44  –  46 of its 2008 Form 10-K (and will include in subsequent Form 10-Qs) in order to present this information to the reader concisely and comprehensively.

b.
To the extent possible, in future filings, please consider revising your various discussions of asset quality, investment portfolios, etc. throughout the document to provide
quantification of the amount of covered assets included in such presentations. For example, in footnote 16 on page 158 you provide various disclosures about your investment portfolio. To the extent that certain of your investments in an unrealized
loss position are covered assets under the loss sharing agreement, please quantify the amount of such covered assets. Similarly, you disclose your nonperforming loans on page 55. Please revise that section in your future filings to quantify the
amount of nonperforming loans that are also covered assets.

 Upon consultation with the respective USG
regulatory bodies and once the confirmatory process with the USG has been finalized, Citigroup will revise its future disclosures, to the extent possible and based on consultation with the respective USG regulatory bodies, to quantify the amount of
covered assets where discussions of asset quality, investment portfolios, etc. are presented.

 Balance Sheet Review – Other Assets, p. 78

44.
Please tell us and revise future filings to discuss the reason for the significant increase in your Deposits with Banks balance between 2007 and 2008. Additionally, please
consider revising future filings to include a description of this account in your financial statements.

 We advise the Staff that the increase in “Deposits with Banks” from December 31, 2007 to December 31, 2008 was primarily in the Company’s deposits with the Federal Reserve. As a result of Federal Reserve policy
changes, the lawful reserves (deposits) held with the Federal Reserve previously classified in Cash are now classified as interest-earning deposits.

 The increase in deposits reflected the $45 billion in TARP funds the Company received during the second half of 2008, of which $20 billion had been received on December 31, 2008, and is also reflective of the
Company’s enhanced liquidity management. The Company will add an additional discussion in its “Balance Sheet Review” section in future filings.

 2

 Confidential Treatment Requested by Citigroup Inc.

 Notes to Consolidated Financial Statements

 Note 9. Retirement Benefits, page 144

45.
Please disclose in future filings how you define “long-term” as it relates to your expected long-term rate of return on plan assets. Also, please disclose what your
actual return on plan assets has been for both 2008 and 2007.

 As it relates to expected long-term rate of
return on plan assets, Citigroup generally defines “long term” to be at least five to ten years. Expected return on plan assets is considered to be a long-term assessment of return expectations and the Company does not anticipate changing
this assumption annually unless there are significant changes in investment strategy or economic conditions. An assessment of any such changes is included in Citigroup’s annual review of plan assumptions.

 Please see page 107 of the Form 10-K for the disclosure of actual return on plan assets for the period 2006-2008.

2008

2007

2006

2005

2004

2003

        2002

2001

 Expected rate of return(1)

8.00
%

8.00
%

8.00
%

8.00
%

8.00
%

8.00
%

 8.00%/9.50%

9.50%

 Actual rate of return

-5.42
%

13.20
%

14.70
%

9.70
%

11.50
%

24.20
%

[***]

[***]

(1)
As of December 31, 2008, Citigroup lowered its expected rate of return to 7.75%. This rate will be used for 2009.

 Note 11. Income Taxes, page 152

46.
We note that you believe you have sufficient positive evidence to support that a deferred tax asset valuation allowance is not necessary as of December 31, 2008, despite the
fact that you are in a cumulative thee-year loss position at the end of the year. Please address the following:

a.
Please tell us in detail how you concluded that you will generate sufficient net income in future periods such that a valuation allowance was not required. Please tell us the
specific assumptions you made in your analysis, including the amount of projected net income for the periods over which you expect to utilize your deferred tax assets. Additionally, please tell us your basis for such assumptions.

 In order to conclude that Citigroup will generate sufficient income in future periods to utilize its
deferred tax assets (DTAs) at December 31, 2008, Citigroup, as it has in past years, undertook an extensive global forecast process for the following year (2009). Although there have been losses in recent periods in certain products (e.g., real
estate lending and other mortgage-backed assets) and these losses have culminated in a fourth quarter 2008 loss that has placed Citigroup in a 3-year cumulative loss position, Citigroup’s core businesses have produced earnings that may be
relied on for future forecasts. The results of these forecast exercises have been used as the basis for Citigroup’s taxable income projections and result in utilization of all tax carryforwards and other DTAs reversing in the carryforward
period by 2016. In addition, Citigroup has determined that the forecasted income would need to decline by [***] before any amount of DTAs would not be realized.

 The projections assume revenue growth rates of [***]. A sizeable percentage of Citigroup’s revenue comes from emerging international
markets and these markets have had long-term growth ranging from [***]. Specific investment initiatives to enable targeted revenue growth have also been identified including, changes in pricing strategies in Cards, up-tiering and segment growth as
well as distribution and partnership plans in Global Transaction Services (GTS), branch expansion opportunities in priority international markets and a high net worth strategy in the Private Bank.

 The resulting pretax income (loss) forecast is presented below (in millions):

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

 Note: 2009 consolidated pretax income does not reflect the [***] projected gain on
the sale of Smith Barney.

 In addition to Citigroup’s usual forecast, Citigroup prepared a stress case scenario that
shows that, even if there were no growth of the core businesses, Citigroup can fully utilize its DTAs.

 The stress scenario
using Citigroup’s new structure of Citicorp and Citi Holdings adjusted Citicorp’s forecasted revenues and credit to [***] and included the benefit of reengineering already in progress. The Citi Holdings assumptions were kept constant to
Citigroup’s financial projections to account for the Smith Barney joint venture (JV) transaction as well as asset reductions within some of the Local Consumer Finance and Special Asset pool businesses. The projections also include write-downs
of mark-to-market positions of [***]. Similar to the usual forecast case above, the stress case forecast results in utilization of all tax carryforwards and other DTAs reversing in the carryforward period. In addition, Citigroup has determined that
the stress case forecast income would need to decline by [***] before any amount of DTAs would not be realized.

 The
resulting stress case pretax income (loss) forecast is presented below (in millions):

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

 Note: 2009 consolidated pretax income does not reflect the [***] projected gain on
the sale of Smith Barney.

b.
Please tell us if there is any additional information you considered when determining that your deferred tax asset and net operating loss carry forwards will be realizable prior
to their expiration. If so, please provide us with detailed information of these factors and how you used them in your analysis. For example, to the extent you considered reversal patterns of existing temporary differences in concluding that your
deferred tax assets are realizable, please provide us with your analysis.

 Citigroup considered additional
information to determine that tax carryforwards would be used prior to their expiration. Specifically, for foreign tax credit (FTC) carryforwards, the expected future income must not only be sufficient, it must be of the appropriate source. U.S. tax
rules pertaining to an Overall Domestic Loss (ODL) operate to recharacterize future domestic income as foreign source income (FSI). Citigroup will have ODLs of [***] at the end of 2011 that will be reclassified as FSI in future years and support the
utilization of carryforward credits. Consequently, FTC carryforwards of $11 billion from 2008 and prior, [***], will be fully utilized by 2016.

47.
We note that one of your tax planning strategies involves “repatriating low taxed foreign earnings for which an APB 23 assertion has not been made.” Please tell us how
you have considered these earnings in determining prior period tax provisions and whether you have recorded a deferred tax liability related to your foreign earnings for which you have not made an APB 23 assertion. Please provide us additional
detail regarding how you intend to utilize them advantageously as support for fully realizing your deferred tax asset.

 One of the tax planning strategies that Citigroup considered involves repatriating low-taxed foreign earnings. Citigroup currently has a significant number of profitable subsidiaries operating in countries with
statutory rates below the U.S. tax rate of 35% that have not elected to reinvest their earnings permanently under APB 23. Repatriating both the cumulative and the future earnings of these subsidiaries, while deferring distributions from high-taxed
foreign subsidiaries, would enable Citigroup to utilize a significant amount of excess credits over the next 10 years. Even if there were regulatory and other restrictions on distributions, this could be overcome through intentionally triggering
U.S. taxable income inclusions. Repatriation of these low-taxed earnings would be delayed until Citigroup has earned out of its net operating loss in order to maximize the amount of excess FTCs that can be absorbed immediately upon repatriation.

 The repatriation of the current low-taxed Earnings and Profits pools ([***], equaling the amount for which a deferred tax
liability has previously been provided through Citigroup’s tax provision), as well as the future earnings over the next 10 years, would allow Citigroup to create well over [***] of excess FTC limitation, which could help utilize FTC
carryforwards.

 3

 Note 16. Investments, page 158

48.
In order to promote transparency to investors and increase consistency within your disclosure, please revise future filings to address the following and provide us with your
proposed disclosures:

a.
Please provide additional detail on the composition of your available-for-sale mortgage-backed securities in a manner similar to your held-to-maturity disclosure on page 161.

b.
Please revise to disclose the amount or percentage of investment grade held-to-maturity securities in an unrealized loss position for greater than 12 months at December 31,
2008.

 In response to the Staff’s comment, Citigroup will implement the enhanced disclosures
suggested above no later than the second quarter of 2009, with the possibility of having them in place for the first quarter of 2009 in conjunction with its adoption of FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments.” Citigroup i