Citigroup Third Quarter Net Income Increases 13% to a Record $5.31 Billion

Business Wire, Oct 14, 2004

NEW YORK -- THIRD QUARTER EPS OF $1.02, UP 13%

REVENUES INCREASE 6% TO $20.5 BILLION

Citigroup Inc. (NYSE:C) today reported net income for the three months ended September 30, 2004, of $5.31 billion and earnings per diluted share of $1.02, each increasing 13% from the third quarter of 2003, and the highest net income recorded by the company for any quarterly period.

"Our third quarter results demonstrate the benefits of our diversified business platform, as strength in our consumer businesses offsets the impact of sluggish capital markets activity and we achieved over 21% return on common equity," said Charles Prince, Chief Executive Officer of Citigroup. "Our consumer businesses delivered record results, with continued international business momentum, as income in cards, consumer finance and retail banking increased 29%, 35% and 15%, respectively. Income in our corporate and investment banking segment increased 7% despite reduced capital markets activity and the impact of a lackluster quarter in fixed income trading, which were offset by excellent performance in underwriting and our transaction services business. Results in both our consumer and corporate businesses reflected the continued positive credit environment, which led to improved credit costs as well as loan loss reserve releases during the quarter. As expected, the yield curve continued to flatten, resulting in lower income from our Treasury operations," continued Prince.

"As we have all year, we continued to strategically invest in growing our businesses. We increased investment spending on advertising and marketing, technology and building new branches. We announced the acquisition of First American Bank, which will establish our retail banking presence in the highly attractive Texas market. We also announced the acquisition of Knight Trading Group's derivatives business, which will add growth and scale in our US equities derivatives franchise. During the quarter we closed the acquisitions of Principal Residential Mortgage and Lava Technologies. In addition, we completed the sale of a portion of our shares in Nikko Cordial, lowering our ownership to 12%. All of these actions reflect our focus on future growth and allocating capital to high return opportunities," said Prince.

"Importantly, we continued to take numerous steps towards our goal of continually improving the way we do business and becoming the most respected financial services company in the world. During this year, we have strengthened the independence and capabilities of our internal control and compliance structure, improved how we manage our businesses, and intensified communication with employees about the kind of company we aspire to be," said Prince.

Highlights of the third quarter of 2004 included:

--Revenue growth of 6% was driven by record revenues in the global consumer businesses, up 15% versus the prior year period. Transaction services also achieved record revenues, which grew 18% year over year. The continued slowdown in capital markets activity during the quarter affected revenues in market sensitive businesses as capital markets and banking revenues decreased 3%, the private bank's revenues decreased 5%, and private client services revenues increased only 2%. In addition, revenues in proprietary investment activities declined 44% and corporate/other revenues declined from $185 million to a negative $264 million. International revenues increased 14%, reflecting continued strong international business momentum.

--Citigroup continued to achieve strong business volume growth in core franchises. In North America retail banking, average loans grew 15%. North America consumer finance average loans increased 12%. Internationally, retail banking deposits increased 21% and cards open accounts grew by 33% to 20.8 million, partially reflecting the KorAm acquisition. Private client fee-based assets increased 15%, to $221 billion, and private bank client business volumes increased 14%, to $212 billion. In transaction services, assets under custody rose 28% and liability balances increased 20%. Life insurance and annuities business volumes increased 21%, to a record $79 billion, and net new flows in asset management were $7.1 billion during the quarter.

--Expenses increased 12% and reflected the impact of several recent acquisitions and foreign exchange, which drove more than 50% of expense growth. Of the remaining expense growth, approximately two-thirds resulted from increased investment spending on core growth initiatives and approximately one-third reflected higher legal costs. New investment spending on advertising and marketing included our US card "Thank You Network" and "Premium Pass" campaigns. New technology investments are designed to enhance data gathering capability and increase competitiveness. In retail banking and consumer finance, investment spending on branch expansion added 79 new branches globally during the quarter, including 28 in India and Brazil.

--Citigroup continued to expand its core franchises, announcing its intended acquisition of First American Bank and Knight Trading Group's derivatives business, which are subject to regulatory approvals. The company also closed the acquisition of Principal Residential Mortgage and Lava Trading. As previously announced, Citigroup continued to exit non-core investments and completed the sale of 175 million shares of Nikko Cordial for $765 million in proceeds and an after-tax gain of $13 million, lowering its ownership to 12%. Citigroup also completed the sale of a portion of its shares of Fubon Holdings, lowering its ownership to 9.9%.