Citigroup Inc. 2009 Form 10-K Summary
Business context and reporting period. Citigroup is a global financial services holding company operating across more than 140 countries. This filing reports the fiscal year ended December 31, 2009, with fourth-quarter results also disclosed. Following a 2009 reorganization, the principal segments were Citicorp, its core consumer and institutional businesses, and Citi Holdings, comprising businesses and assets intended for reduction or exit, plus Corporate/Other.
Key financial metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net revenue | $80.3 billion | $51.6 billion |
| Net interest revenue | $48.9 billion | $53.7 billion |
| Non-interest revenue | $31.4 billion | $(2.2) billion |
| Operating expenses | $47.8 billion | $69.2 billion |
| Credit-loss and benefits provisions | $40.3 billion | $34.7 billion |
| Income (loss) from continuing operations | $(1.1) billion | $(32.0) billion |
| Net income (loss) attributable to Citigroup | $(1.6) billion | $(27.7) billion |
| Diluted EPS | $(0.80) | $(5.63) |
| Operating cash flow, continuing operations | $(55.7) billion | $96.5 billion |
| Total assets at year-end | $1.86 trillion | $1.94 trillion |
| Deposits at year-end | $835.9 billion | $774.2 billion |
| Long-term debt at year-end | $364.0 billion | $359.6 billion |
Citigroup’s reported 2009 net interest margin was 3.03% on an annual average basis; management also reported a year-end margin of 2.65%, down from 3.26% at year-end 2008. These are different measures. Return on common equity was negative 9.4%, compared with negative 28.8% in 2008.
At year-end, the allowance for loan losses was $36.0 billion, or 6.09% of loans, versus $29.6 billion, or 4.27%, a year earlier. Net credit losses were $30.7 billion, up from $19.0 billion. Citi recorded an $8.0 billion net reserve build. Total consumer and corporate non-accrual loans were $32.2 billion, compared with $22.3 billion.
Regulatory capital ratios were 9.60% Tier 1 Common, 11.67% Tier 1 Capital, 15.25% Total Capital and 6.89% leverage. Tangible common equity was $118.2 billion, or 10.86% of risk-weighted assets. These capital measures include non-GAAP measures as identified in the filing.
Liquidity resources strengthened: structural liquidity was 73% of assets, compared with 66% in 2008; aggregate liquidity resources were $315.5 billion, up from $200.3 billion. Cash and deposits with banks totaled approximately $193 billion. Total debt, including short-term borrowings, was approximately $433 billion, down from $486 billion.
Material changes versus 2008
- Net loss narrowed by about $26.1 billion. Revenue rose 56%, mainly because 2009 had far smaller negative valuation marks than 2008; non-interest revenue shifted from a $2.2 billion loss to $31.4 billion of revenue.
- Key items affecting 2009 included an $11.1 billion pretax gain on the Smith Barney joint venture sale, a $1.4 billion pretax gain related to exchange offers, and a $10.1 billion pretax loss associated with repaying TARP and exiting the government loss-sharing agreement. These items are not indicative of recurring earnings.
- Credit provisions increased to $40.3 billion from $34.7 billion, while operating expenses fell to $47.8 billion from $69.2 billion. The filing attributes much of the expense decline to divestitures and restructuring.
- Citicorp earned $14.8 billion from continuing operations, versus $6.2 billion in 2008. Citi Holdings lost $8.2 billion, versus a $36.0 billion loss. Corporate/Other lost $7.6 billion, versus $2.2 billion.
- Total assets fell 4%; deposits rose 8%. Citi Holdings’ assets declined to $547 billion from $715 billion and were expected to fall further through asset sales and runoff.
- Citigroup repaid $20 billion of Treasury TARP trust preferred securities and exited the loss-sharing agreement on December 23, 2009. It raised approximately $20.3 billion in common equity and tangible equity units in connection with the repayment. The Treasury still held approximately 27% of common shares at year-end.
Fourth-quarter 2009 net revenue was $5.4 billion and the net loss attributable to Citigroup was $7.6 billion, compared with a $17.3 billion loss in fourth-quarter 2008. The 2009 fourth quarter included an $840 million pretax cumulative correction of a credit valuation adjustment calculation error; the company stated that the error was not material to previously reported periods.
Outlook, risks and unusual items
- Management outlook: Citi entered 2010 cautiously, prioritizing capital, liquidity, risk controls and expense discipline. Management expected credit costs to remain a major earnings driver, with U.S. consumer net credit losses expected to rise modestly in first-quarter 2010 from fourth-quarter levels before potentially improving slightly. Later-year credit trends depended on the economy and loss-mitigation results. Net interest margin was expected to remain under pressure. Citi anticipated less than $15 billion of parent-level long-term debt issuance in 2010, compared with $85 billion in 2009.
- Regulation and card revenue: Management estimated the 2010 CARD Act revenue impact at $400–$600 million for North America Regional Consumer Banking and $50–$150 million for Local Consumer Lending. Legislative and regulatory reform, capital rules and the withdrawal of government support were significant uncertainties.
- Accounting and capital: Adoption of SFAS 166 and 167 in 2010 was estimated to reduce retained earnings by $8.3 billion after tax. Pro forma Tier 1 Common was estimated at 8.21%, versus 9.60% reported at year-end 2009. Actual effects could differ.
- Credit and asset risks: Weak U.S. employment and housing markets, mortgage delinquencies, credit-card losses, HAMP modification outcomes, commercial real estate exposures, subprime-related positions and the pace of Citi Holdings’ asset exits could affect results. Citi reported $8.4 billion of net direct U.S. subprime-related exposure in the Special Asset Pool.
- Other exposures: The filing identifies legal and regulatory proceedings, counterparty and market risk, possible ratings-related collateral needs, and operational and cybersecurity risks. Management said the eventual outcome of legal matters was not expected to materially affect consolidated financial condition, but adverse outcomes could materially affect quarterly or annual results or cash flows.
- Tax and dilution: Citi reported $46.1 billion of net deferred tax assets, whose use depends on future taxable income and could be limited by an ownership change. The Treasury’s planned sale of its approximately 27% stake, employee stock awards, tangible equity units and other planned share issuances could add dilution or pressure the share price. Expiration of the active-financing tax exception was also a risk.
- Accounting and controls: KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management reported effective disclosure controls and internal controls at December 31, 2009.
Important facts for investors to verify
- How much of the improvement in 2009 earnings came from sale gains, valuation marks and government-related transactions rather than recurring operations.
- Whether credit losses, delinquencies and reserve coverage improve or deteriorate, especially in U.S. mortgages, cards and commercial real estate.
- The realized impact of the CARD Act, HAMP and other loss-mitigation programs on revenue, provisions and collections.
- The actual capital, balance-sheet and earnings effects of SFAS 166 and 167 adoption, including the extent of newly consolidated securitization assets.
- Whether Citi Holdings asset reductions generate value without excessive losses, and how the planned $61 billion transfer of assets to Citicorp affects segment comparisons.
- Whether deferred tax assets remain realizable, and the effect of potential ownership changes, Treasury share sales and other equity issuance on common shareholders.
- The quality and availability of liquidity after government programs ended, and the sensitivity of funding costs and collateral requirements to credit-rating changes.