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Executives

Vikram Pandit - Chief Executive Officer and Director

John Gerspach - Chief Financial Officer

John Andrews - Director, Investor Relations

Analysts

Ed Najarian - ISI Group Inc.

John McDonald - Sanford C. Bernstein & Co., Inc.

Betsy Graseck - Morgan Stanley

James Mitchell - Buckingham Research Group, Inc.

Guy Moszkowski - BofA Merrill Lynch

Christoph Kotowski - Oppenheimer & Co. Inc.

Glenn Schorr - Nomura Securities Co. Ltd.

Carole Berger - Soleil Securities Group, Inc.

Michael Mayo - Credit Agricole Securities (USA) Inc.

Richard Bove - Rochdale Securities LLC

Matthew O'Connor - Deutsche Bank AG

Citigroup (C) Q1 2011 Earnings Call April 18, 2011 11:00 AM ET

Operator

Hello, and welcome to Citi's First Quarter 2011 Earnings Review with Chief Executive Officer, Vikram Pandit; and Chief Financial Officer, John Gerspach. Today's call will be hosted by John Andrews, Head of Citi Investor Relations. [Operator Instructions] Also, as a reminder this conference call is being recorded today. If you have any objections, please disconnect at this time. Mr. Andrews, you may begin.

John Andrews

Great. Thank you, Celeste. Good morning, and thank you, all, for joining us today. On the call, our CEO, Vikram Pandit will speak first; then John Gerspach, the CFO will take you through the earnings presentation, which is available for download on our website, citigroup.com. Afterwards, we'll be happy to take your questions.

Before we get started, I would like to remind you that today's presentation may contain forward-looking statements, which are based on management's current expectations and thus, subject to uncertainty and changes in circumstances. Actual results may differ materially from these statements due to a variety of factors including the precautionary statements referenced in our discussion today and those included in our SEC filings, including without limitation the Risk Factor section of our 2010 Form 10-K.

With that out of the way, let me turn it over to Vikram.

Vikram Pandit

John, thank you, and good morning, everyone. Thank you very much for joining us today. As you know, last year was our first year of profitability since the financial crisis and we continue to make progress in 2011. We earned $3 billion this quarter, more than double what we earned last quarter. Revenues were up 7% and expenses were down 1%. The environment has been challenging, low interest rates are compressing spreads and we continue to carry large amounts of liquidity. But we believe this is a cyclical, not a secular issue. Our core businesses performed well despite the environment, with Citicorp earning $4.1 billion for the quarter and Citicorp Consumer and Corporate loans grew on a combined basis by 10% year-over-year, and pretax earnings in Citicorp were almost evenly split between the emerging and developed markets, reflecting our deep roots in the 160 countries where we do business.

On the Institutional side, our client business in Securities and Banking was strong, although down from one year ago. Revenues in lending, equities and Fixed Income rebounded strongly from the previous quarter. Client activity in our Global Transaction Services was also strong. We had higher transaction volumes, deposits, trade finance loans and we have a strong pipeline going forward.

In both U.S. and international Consumer Banking, net income was up from the last quarter and the first quarter of 2010. Net credit losses declined 31% from the first quarter last year. Internationally, average deposits and loan increased 13% and 14%, respectively, from a year ago and credit trends continue to improve. Throughout our franchise, we are focused on adding high performance assets and we remain very selective about the assets we put on our books.

We continue to divest non-core assets in Citi Holdings, with a $22 billion decrease in the first quarter, total assets in Holdings stand at $337 billion, down from 33% from one year ago. Citi Holdings assets are now at about 17% of our total balance sheet. And losses in Citi Holdings, this quarter, the loss was $608 million, down from 31% from the prior year.

These results helped improve our financial strength. Our Tier 1 Common ratio increased to 11.3% and our tangible book value increased to $4.69 per share, up $0.24 per share from last quarter and up 15% from a year ago. We're also building for the future. We're making substantial investments in our businesses in Citicorp. In the first quarter, investments exceeded $500 million, including technology, branches, marketing and new corporate and investment banking hires. In addition, we're building our Commercial Banking business.

Lastly, we announced a 1-for-10 reverse stock split, to be effective on the morning of May 9. We also announced our intention to reinstate a dividend of $0.01 per share in the second quarter. These are meaningful steps as we anticipate returning capital to our shareholders next year.

We will continue to execute on our strategy with discipline, reduce assets in Holdings and invest in key markets in our core businesses. I believe that we've demonstrated that we're consistently profitable and we're now focused on responsible growth.

Let me turn it over to John Gerspach and we'll come back and answer questions at the end.

John Gerspach

Thank you, Vikram, and good morning, everyone. Starting on Slide 2, Citigroup reported first quarter net income of $3 billion or $0.10 per diluted share versus $0.15 in the first quarter of 2010. This quarter's results included a $709 million net pretax loss on the transfer of certain securities in the Special Asset Pool from held to maturity to Trading Assets, which I'll discuss later. We also saw a negative CVA [credit value adjustments] of $256 million from Citi spreads tightening compared to a positive $308 million last year. Revenues of $19.7 billion were down 22% versus the first quarter of 2010 due primarily to lower securities and banking revenues, declining assets in Citi Holdings and the loss on the asset transfer. Expenses were up 7% year-over-year to $12.3 billion, driven by higher investment spending, volume-related costs, the impact of foreign exchange, and higher legal and related costs, all of which were partially offset by continued productivity savings and declining expenses in Citi Holdings.

Net credit losses declined for the 7th consecutive quarter to $6.3 billion, 25% lower than the first quarter of 2010. We also released $3.3 billion of net loan loss reserves compared to a $53 million net release last year.

Turning now to Citicorp and Citi Holdings on Slide 3. Citicorp reported revenues of $16.5 billion and net income of roughly $4 billion in the first quarter. Results were lower than the first quarter of 2010, which benefited from a stronger trading environment. We continued to show progress in growing Citicorp with loans up 10% year-over-year, including 6% growth in consumer and 16% growth in corporate loans. Citi Holdings reported revenues of $3.3 billion and a net loss of $608 million. Citi Holdings ended the quarter with $337 billion of assets, down $22 billion during the quarter and down $166 billion year-over-year.

Now on Slide 4, we show a 9 quarter trend for Citicorp's results. Excluding CVA, Citicorp's revenues were $16.7 billion, down 8% versus the prior year and up 9% sequentially, driven by higher Fixed Income and Equity Markets revenues versus the fourth quarter. Operating expenses of $9.6 billion were up 12% versus the prior year, more than half of the increase was due to higher investment spending. The remainder was roughly split between the impact of foreign exchange and inflation, and higher legal and related costs. Higher volume-driven expenses were offset by continued productivity savings.

Citicorp's net credit losses were $2.3 billion, down 26% from the prior year, driven by Citi-Branded Cards in North America. We released $1.3 billion in net loan loss reserves, up from $367 million last year, mostly due to higher net releases in Citi-Branded Cards and the corporate portfolio.

Excluding CVA, earnings before taxes of $6 billion declined 12% year-over-year and were up over 50% from the prior quarter. Citicorp continued to benefit from a strong emerging market franchise in the first quarter as shown on Slide 5. Excluding CVA, emerging markets contributed 44% of Citicorp's revenues and over 50% of earnings before taxes in the first quarter. We have generated year-over-year growth in emerging markets revenues for 4 consecutive quarters, driven by both our consumer and institutional businesses. This growth reflects consistent strength in underlying business drivers, with average deposits up 8% year-over-year and loans up 20%. While expenses have grown as we ramped up investments in these regions, we have also benefited from credit improvement as emerging markets recovered earlier than developed markets. As a result, while increasing our investments, we also maintained year-over-year earnings growth in emerging markets in each quarter of 2010 and the first quarter of 2011.

Slide 6 shows results for our North America Consumer Banking business. Revenues of $3.3 billion were down 12% versus last year, mainly due to a decline in average loans and the impact of CARD Act. Expenses were up 4% year-over-year to $1.7 billion, as we continued to invest largely through higher marketing and technology spending. Credit costs declined 63% from last year to $797 million. Net credit losses were down 33% to $1.4 billion, driven by Citi-Branded cards, and the reserve release was $649 million this quarter.

Net credit margin grew by 15% year-over-year to $1.9 billion. Sequentially, total accounts remained stable in the first quarter of 2011, while card purchase sales reflected a seasonal decline versus the fourth quarter. On a year-over-year basis, card purchase sales were up slightly on a smaller account base, reflecting 4% growth in sales per account.

Turning to our international Consumer Banking businesses on Slide 7. International revenues were $4.6 billion in the first quarter, up 8% year-over-year, driven by growth in Asia and Latin America. Revenue growth reflects both an improvement in underlying drivers, as well as a benefit from foreign exchange, partially offset by spread compression. We also had a $70 million charge to revenues for the anticipated repurchase of certain securities sold in Asia. Year-over-year, average deposits and loans grew by 13% and 14%, respectively.

Investment sales were up 5% versus last year and card purchases grew 20%. Expenses were $2.8 billion in the first quarter, up 18% versus last year, with roughly 1/3 of the increase due to the impact of foreign exchange and inflation. The remainder primarily reflects higher investment spending and volume related costs, partially offset by the continued productivity savings. Credit costs of $493 million were down 33% versus last year, driven by a decline in net credit losses. Higher revenues and the lower net credit losses resulted in net credit margin expansion again in the first quarter, up 16% year-over-year to $3.9 billion.

On Slide 8, we show revenue growth trends for international Consumer Banking in more detail. Sequentially, we have grown average loans and deposits every quarter for 2 years and we saw progress again this quarter in card purchase sales and investment sales. These trends reflect the economic environment in these regions, as well as the results of our investment spending. With growing revenues and improving credit costs, we have increased our net credit margin year-over-year for 6 consecutive quarters.

Slide 9 shows our Securities and Banking business. Excluding CVA, revenues of $6.2 billion were down 19% from the first quarter of last year, driven primarily by Fixed Income Markets. In Investment Banking, revenues were down $206 million to $851 million, primarily driven by lower debt underwriting. x CVA, equity market revenues were down 9% versus last year to $1.1 billion. Cash equity revenues and client volumes grew year-over-year, but were more than offset by lower trading revenues on principal positions.

Fixed Income Market revenues, x CVA, were down 22% year-over-year to $4 billion. While client volumes remained strong, trading revenues on market making activities were lower versus 2010, reflecting, in part, tighter bid-offer spreads across most trading products, as additional liquidity entered the markets since last year. On a sequential basis, total markets revenues for equities and fixed income were up 64% in the first quarter, driven by higher volumes across most products and a more favorable trading environment versus the fourth quarter. Lending revenues were $244 million, flat versus last year. Private Bank revenues, excluding CVA, were up 5% year-over-year to $520 million.

Total operating expenses of $3.8 billion were up 11% from last year, roughly half of the increase was due to the absence of a litigation reserve release in the first quarter of 2010. The remainder mostly reflects investment spending and higher volume related costs, partially offset by productivity savings. Credit costs were a benefit again in the first quarter as net credit losses were more than offset by net reserve releases in the corporate portfolio.

Moving to Transaction Services on Slide 10. Revenues of $2.6 billion were up 5% from the first quarter of last year, driven by growth in Asia and Latin America. Treasury and Trade Solutions was up 3% on higher trade revenues and increased deposits, partially offset by spread compression. Securities and Fund Services grew 9% year-over-year, driven by higher volumes. Overall transaction volumes and new mandates remained strong across both businesses during the quarter.

Asset growth was driven by trade finance, with average trade assets up over 80% from last year. Average deposits grew 11% to $355 billion and assets under custody were up 10% to $13 trillion. Expenses of $1.3 billion were up 14% versus last year, reflecting higher volumes and continued investment to grow the business, partially offset by productivity savings.

Slide 11 shows Citi Holdings assets. We ended the quarter with $337 billion in Citi Holdings or 17% of total Citigroup assets. The $22 billion reduction in the first quarter was comprised of over $7 billion of asset sales and business dispositions, approximately $13 billion of net runoff and pay downs, and $1.3 billion of net cost of credit and net asset marks.

On Slide 12, we provide more details on the transfer of nearly $13 billion of assets in the Special Asset Pool from held-to-maturity to trading. The majority of these securities had originally been classified as available-for-sale, and they were transferred to held-to-maturity in the fourth quarter of 2008. We have moved the securities to trading assets, allowing us to sell them as a mitigating action in anticipation of adopting Basel III. These $13 billion of securities would have had a disproportionately higher Basel III risk weighting compared to the remainder of the City Holdings assets. The transfer resulted in a net $709 million pretax charge to revenues resulting from the recognition of $1.7 billion in net pretax losses, which were previously reflected in OCI, partially offset by $946 million of mark-to-market and realized gains. OCI increased by $1 billion, representing the reversal of net unrealized losses after tax.

To date, we have sold nearly 75% of these assets at prices generally at or above our marks.

On Slide 13, we show a 9 quarter trend for Citi Holdings results. We narrowed the loss in Citi Holdings again this quarter to $608 million. Revenues were down 50% year-over-year to $3.3 billion due to declining assets, lower positive marks in the Special Asset Pool and the loss on the asset transfer this quarter. Expenses of $2 billion were down 22% versus last year and total credit costs were down 64% to $2.1 billion.

Looking at the Citi Holdings in more detail on Slide 14, revenues in Brokerage and Asset Management were $137 million this quarter, down from the first quarter of 2010, which included gains on the sale of Habitat and Colfondos. In Local Consumer Lending, revenues were down 32% versus last year to $3.2 billion, driven by declining loan balances, a higher mortgage repurchase reserve build and a higher refund reserve build related to our Consumer Finance business in Japan. In the Special Asset Pool, revenues were a negative $7 million in the first quarter, down significantly from last year due to lower positive revenue marks and the $709 million loss on the asset transfer. Credit costs were down 64% year-over-year to $2.1 billion as credit costs continued to improve in both the consumer and corporate portfolios. Total net credit losses were down 25% to $4 billion as lower consumer net credit losses were partially offset by higher corporate losses. Credit losses in the Special Asset Pool more than doubled year-over-year to $670 million, reflecting higher costs of loan sales and higher net credit losses on loans for which we had previously established specific FAS 114 reserves, which were then released during the quarter.

We released $2.1 billion of net loan loss reserves in Citi Holdings in the first quarter, nearly half of which was attributable to the corporate portfolio. Local Consumer Lending continues to drive the earnings performance of Citi Holdings with nearly $600 million of net loss for the quarter. Within Local Consumer Lending, the net loss was mostly attributable to the mortgage portfolio.

Slide 15 shows the results for the Corporate/Other segment. Revenues declined by $410 million versus last year, reflecting lower investment yields and net losses on hedging activities. Net income also reflects higher operating expenses during the quarter. Expenses were up by $356 million versus last year, mainly due to legal and related costs. Assets of $281 billion include approximately $80 billion of cash and cash equivalents and $146 billion of liquid available-for-sale securities.

Slide 16 shows total Citigroup net credit losses and loan loss reserves. NCLs [net credit losses] continued to improve in the first quarter, down 9% sequentially to $6.3 billion. And the net LLR [loan loss reserves] release grew nearly 50% to $3.3 billion. We ended the quarter with $36.6 billion of total loan loss reserves and our LLR ratio was 5.8%. Consumer NCLs declined 12% sequentially to $5.4 billion and we released $2 billion in net loan loss reserves. Corporate credit was a benefit of $520 million in the first quarter compared to $256 million last quarter. Corporate net credit losses grew 28% sequentially to $849 million, driven by charge-offs for loans for which we had previously established specific reserves, which were then released during the quarter.

We released $1.4 billion of net corporate loan loss reserves in the first quarter, up from $920 million in the fourth quarter. Corporate nonaccrual loans of $5.5 billion were down 36% versus the prior quarter, the majority of which was attributable to EMI.

Moving to consumer credit trends on Slide 17. As I mentioned, consumer net credit losses of $5.4 billion were down 12% sequentially due primarily to North America cards. Our net credit loss ratio declined again this quarter to 4.9% and our loan loss reserve ratio was 7.5%.

Slide 18 shows our International Consumer credit trends. In Citicorp, NCLs continued to improve on both a dollar and a rate basis in the first quarter, while dollar delinquencies grew in some markets as we continued to grow our international loans. In Asia, India continued to show the most significant improvement in net credit losses. For the region, 90-plus day delinquencies were flat, but down as a percentage of loans. In Latin America, net credit losses continued to improve, driven by Mexico cards. And our 90-plus day delinquencies improved on a rate basis.

On Slide 19, we showed Citi-Branded Cards in Citicorp and Retail Partner Cards in Citi Holdings. Credit trends for both portfolios continued to improve. In Citi-Branded Cards, NCLs declined for the fourth consecutive quarter. NCLs decreased by 19% sequentially to $1.4 billion and 90-plus day delinquencies were down 10% to $1.4 billion. In Retail Partner Cards, NCLs were down for the 7th consecutive quarter. NCLs decreased by 18% sequentially to $1.1 billion and 90-plus day delinquencies declined by 19% to $1.3 billion. For both portfolios, early stage delinquencies also showed improvement on both a dollar and a rate basis.

On Slide 20, we show the North America mortgage portfolio in Citi Holdings, split between Residential 1st Mortgages and Home Equity Loans. 90-plus day delinquencies in both portfolios improved again this quarter. In Residential 1st Mortgages, we ended the quarter with $76 billion of loans, down 21% from a year ago. Sequentially, 90-plus day delinquencies declined by 18% to $4.5 billion and were down more than 50% from last year. Net credit losses increased slightly from the fourth quarter due to lower recoveries, but were down 26% versus a year ago. The sequential decline in first mortgage delinquencies was mostly due to asset sales and trial mods [modifications] converting to permanent modifications. During the first quarter, we sold $1.1 billion in delinquent mortgages. Over the past eight quarters, we have converted $5.3 billion of trial mods to permanent modifications. More than three quarters of these trial modifications were HAMP and we continued to experience re-default rates on HAMP-modified loans of less than 15%. The remainder were modified under other Citi programs. And to date, the re-default rate on these modifications has been less than 25%. In North America real estate lending and Citi Holdings, our total loan loss reserves represent two years of coincident NCL coverage.

Slide 21 shows the trend in our key capital metrics. We ended the quarter with a Tier 1 Capital ratio of 13.3% and a Tier 1 Common ratio of 11.3%. Our GAAP assets declined 3% year-over-year, while we reduced our risk-weighted assets by 7% to $990 billion. Citi Holdings represents roughly 31% of our total risk-weighted assets.

So in summary, the first quarter showed continued execution of our strategy. While Securities and Banking faced a less favorable environment as compared to the first quarter of 2010, our markets business grew significantly from the fourth quarter, with robust client activity across Fixed Income and Equities. Year-over-year, we generated strong growth in both international Consumer Banking and Transaction Services. Importantly, we accomplished these results in a challenging environment as low interest rates continued to compress spreads.

We continued to invest in Citicorp and we are seeing results across our major business drivers, including loans, deposits, transaction volumes and card purchase sales.

In Citi Holdings, we ended the quarter with $337 billion of assets, representing 17% of total Citigroup. Assets were down by 1/3 from a year ago and Citi Holdings expenses declined by 22%. Credit remained a significant contributor to earnings in the first quarter, as net credit losses continued to decline particularly in North America cards.

During the quarter, we grew our tangible book value per share by $0.24 to $4.69 per share, and our Tier 1 Common ratio grew over 50 basis points to 11.3%. We also have over $36 billion of loan loss reserves. Based upon what we know today, we remain confident that we are on track to operate in the 8% to 9% Tier 1 Common range under Basel III in 2012. And assuming we have clarity on capital rules, we still expect to be in a position to begin returning capital to shareholders next year. Now, I'd like to discuss some factors that may affect our results for the remainder of 2011.

In North America Consumer Banking, we continue to expect net credit margin to be primarily driven by improvement in net credit losses. As credit continues to improve, we will further increase our investments in the business. In international Consumer Banking, net credit margin is more likely to be driven by revenue growth, particularly in the second half of the year, as our investment spending should continue to generate volume growth to outpace spread compression. International credit costs are likely to begin to increase in 2011, reflecting a growing loan portfolio. In Local Consumer Lending in Citi Holdings, revenues should continue to decline given a shrinking loan balance resulting from pay downs and continued asset sales. However, as we've seen in the first quarter, the pace of decline in Citi Holdings assets has moderated. Regarding expenses, we continued to expect full year Citigroup expenses of $48 billion to $50 billion this year, with some variability across quarters as we continue investing in Citicorp, while rationalizing Citi Holdings. Certain expenses, particularly legal costs and the impact of foreign exchange will remain difficult to predict.

Now that concludes our review of the quarter. And Vikram and I will now open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of John McDonald with Sanford Bernstein.

John McDonald - Sanford C. Bernstein & Co., Inc.

John, just a question, follow up on the expense outlook that you just gave. Just to be clear, the FX and legal costs are difficult to predict, but those are included in your outlook of the $48 billion to $50 billion?

John Gerspach

They are included in the $48 billion to $50 billion based upon what we've seen to date. But, John, I can't predict where the dollar is going to trade against all the different local currencies for the remainder of the year. So again, if the dollar continues to decline, we may have to be outside that range.

John McDonald - Sanford C. Bernstein & Co., Inc.

Okay. And in terms of regulatory costs, the higher FDIC expenses, is that baked into the guidance as well?

John Gerspach

Well, we account for FDIC assessments as a contra revenue, and so that would not be part of our expense guidance, but that would be baked into what you would think about for a revenue performance for the balance of the year. Now if I can anticipate your next question, based upon the way we understand the assessments will be working, we anticipate that the additional FDIC tax on us would amount to an annual increase of about $550 million and we'll start reflecting that in our results in the second quarter.

John McDonald - Sanford C. Bernstein & Co., Inc.

Okay. The question on Corporate/Other, I'm just kind of wondering longer term, do you think Corporate/Other will always be a net cost center or when you're not carrying as much a liquidity in legal expenses, should that have a modest positive contribution over time or too difficult to predict?

John Gerspach

I think that's a little difficult to predict. We tend to hold some expenses in Corporate/Other, some of the more significant legal expenses as we lay out for you when we have them. From a revenue point of view, Corporate/Other, it varies. Our hedging activities, over time, at least over the last several quarters, have tend to be somewhat on the negative. We carry some macro hedges in Corporate/Other, trying to address some fat-tail risks in some of our businesses, particularly Consumer business. So it's more likely to be negative, but the size of the negative pretax income should vary.

John McDonald - Sanford C. Bernstein & Co., Inc.

Okay. And one just last follow-up on that. Just in terms of an expense rump from Holdings, is there a piece of unallocated expenses at Holdings that would come back to Citicorp after Holdings has wound down? Is there any way to help us think about sizing that?

John Gerspach

Well, we're actually very focused on what we would call stranded costs in Citi Holdings. And so as we wind down Citi Holdings, we're trying to eliminate all the costs in Citi Holdings and so that we end up with 0 stranded costs. So I think we've demonstrated a pretty good discipline doing that. You can pretty much track the decline in Citi Holdings expenses against their decline in assets. If you pull apart the decline in assets in the Special Asset Pool and Brokerage and Asset Management, our expenses as a percentage of assets in each of those businesses has held pretty steadily during the last 6 or so quarters. We had a slight uptick in expenses in local Consumer Lending against the assets and that's mostly reflective of additional expenses that we'd be incurring in our Mortgage business related to foreclosure activities, modifications, et cetera.

John McDonald - Sanford C. Bernstein & Co., Inc.

Okay. But your goal is to not have any stranded costs once Holdings is completely wound down and that feels a reasonable goal to you?

John Gerspach

That is the goal.

John McDonald - Sanford C. Bernstein & Co., Inc.

Okay. Thank you.

Operator

Your next question comes from the line of Glenn Schorr with Nomura.

Glenn Schorr - Nomura Securities Co. Ltd.

So first one is just conceptual. On Slide 21, you showed that total risk weighted assets went up and I love the non-U.S. growth in loans, but all in, you had a little bit of shrinkage in loans, you shrunk Holdings as well. Is it fair to assume that the increase in risk-weighted assets is some form of ratings creep?

John Gerspach

No, it's not really ratings creep. If you just take a look at overall, our GAAP assets did grow from the fourth quarter to the first quarter. And we also -- so if you take a look at brokerage receivables, that was one of the accounts that sort of grew. So it really just reflects just the overall growth in the GAAP balance sheet.

Glenn Schorr - Nomura Securities Co. Ltd.

Okay. And I appreciate the comments on operating and getting towards the 8% to 9% in 2012. Would you be able to tell us where you're at in a Basel III equivalent today because my guesstimation is somewhere around the 6% level which is doable, it means that you'd have to grow maybe 30 basis points from here to there per quarter, which seems about right.

John Gerspach

Yes. You know, Glenn, all I'm going to say is that we're -- as I've said in the prepared comments, we remain on track to be in that 8% to 9% range for Basel III next year.

Glenn Schorr - Nomura Securities Co. Ltd.

Okay. In the appendix on Slide 35, you could look at what was transferred out and sold and it looks like mostly Alt-A and prime mortgages. And if that's correct, I'm just curious on what you're thinking in terms of housing in general. I mean you have less mortgage exposure than some other big banks, but you got some and you seem to be selling down those positions. Is that more risk-weighted asset commentary and mitigation or is it just as much a view of the markets in general?

John Gerspach

I want to make sure I answer your question, so if I stumble a little bit, Glenn, get me back on track. Specific to the transfer in SAP, those obviously are assets that we -- since they're in Holdings, those are not core to us, we're looking to get rid of those assets. We had them originally in hold-to-maturity. The decision we reached on that transfer was solely Basel III related, just trying to -- again, as part of our staying on track to get to that 8% to 9% range for next year. These are assets, this $12.7 billion, these are assets that just had a disproportionately high risk weighting under Basel III. And so we took the opportunity this quarter to move them to a portfolio where we could get them off our books. So that's what's going on with the Holdings. Regarding our other mortgages in Citi Holdings in the real estate book, we continue to actively manage that. As I said, we've been active sellers of those mortgages over the last 5 quarters, the last 5 quarters, we've had something like $10 billion of sales out of the mortgage book, roughly $6 billion, I think it was a little bit slightly over $6 billion of that $10 billion was on delinquent loans. We continue to think that the best way to manage the severity risk that you have in that business is by selling delinquent mortgages. And so we are still active sellers of mortgages in that business.

Glenn Schorr - Nomura Securities Co. Ltd.

Okay. Thank you for that. One last question on the NIM [net interest margin]. It came in 6 basis points and my gut is there's a bunch of, obviously, puts and takes. But as you have some of the Holdings wind down and some of the higher-yielding stuff runoff; I would think that's a natural effort or a natural runoff. However, at some other banks, you're seeing some mortgage extension help support the NIM. Just curious on what your efforts are behind the scene if it's on your mind that you need to support that or do you let it drift lower and actually the benefit is the derisking of the portfolio?

John Gerspach

I'm going to probably demonstrate -- I'm probably going to disappoint a whole bunch of NIM-ites out there. I don't wake up in the morning and actively worry about what's going on with my NIM specifically. We're really trying to -- don't forget, NIM, when it comes to our trading books, NIM in a trading portfolio can be plus and minus and so it kind of varies all over the place. What we're focused on is executing the strategy that we put in place back in the beginning of 2008 and that is really managing the Holdings assets down. And you're right, as those assets runoff, that's going to put some pressure on our NIM because those are some higher earning assets. At the same point in time, I think now what you're seeing is you're seeing some good growth in the assets in Citicorp. We mentioned the fact that Citicorp loans grew 10% year-over-year. And we continue to see good growth coming out of our international Regional Consumer Banking businesses. The Latin America loans were up 17% year-over-year, loans in Asia were up 16% year-over-year. The spread that we get on those loans will gradually help to mitigate the NIM pressure that we're getting from winding down Citi Holdings.

Operator

Your next question comes from the line of Guy Moszkowski with Bank of America.

Guy Moszkowski - BofA Merrill Lynch

Listen, just a follow-up on the NIM question for a second, I don't want to beat the horse to death. I appreciate that you don't wake up in the morning thinking about this. But last quarter, you gave us a near-term outlook and you came in just about exactly in line with that near-term outlook this quarter, so I guess I should ask the question again. Over the next quarter or two, what should we expect in terms of the directionality there?

John Gerspach

I think that we're going to have some pressure on NIM in the second quarter. The additional FDIC assessment that I mentioned in response to one of the earlier questions, we do account for that in our revenues. That does impact our NIM, so that will give us some downward impact. And we still have spreads that are under pressure. So it's not --- my expectation would be may be similar to this quarter as far as downward pressure.

Guy Moszkowski - BofA Merrill Lynch

In terms of the downward pressure, so just sort of a continuation of that trend. And just to go back to the Citi Holdings...

John Gerspach

I do think about NIM every day. I just don't wake up thinking about it.

Guy Moszkowski - BofA Merrill Lynch

Fair enough. Just to go back to the discussion on the Citi Holdings expense, I mean, it seems like a fairly chunky step function decline from the fourth quarter, notwithstanding a little bit of noise in the fourth quarter there, to the $2 billion run rate. Should we think of $2 billion as a run rate for the next few quarters before another step function? Or are you really going to try to manage it more downward gradually in line with the asset decline?

John Gerspach

It really -- as I said, the chunkiness will come as we do perhaps some of the larger property sales. I mean, to the extent that we could sell a business, that would obviously take, be a bit of a step function that comes down. Otherwise, the downward -- the decline in Citi Holdings expenses should pretty much track as the assets are coming off the books.

Guy Moszkowski - BofA Merrill Lynch

And can you update us on the attempts to sell CitiFinancial since you brought up the potential for asset sales there? And some of the press reports have indicated $13 billion, $14 billion of assets being discussed as part of that sale. Is that about the right order of magnitude?

John Gerspach

That's -- I'm not going to comment on the press reports. We did, as we mentioned earlier last year, restructure that business into a legacy portfolio that it would be more likely that we would retain in any type of sale. And then an asset portfolio that really goes with the ongoing business. So you're in the ballpark.

Guy Moszkowski - BofA Merrill Lynch

Okay, fair enough. And just a follow-up on the comments that you've made about FX driving a fairly meaningful portion of the expense structure increases. I mean, that's fair, but shouldn't it have a comparable impact on the revenues?

John Gerspach

Yes, absolutely. When you take a look at FX impact overall, and that only has an impact on revenues, obviously it has got an impact on net credit losses as well. So if you want to think about the net impact of FX on Citicorp, net of the impact on revenues on expenses, on NCLs, FX changes added about $50 million, that's 5-0, of pretax earnings to Citicorp in the quarter. And then if you take a look at Citigroup, when you factor in the FX impact on some of the international NCLs and Holdings and the expenses in Holdings, it actually ends up being pretax neutral.

Guy Moszkowski - BofA Merrill Lynch

Finally, let me just ask one more question which is, if you can give us a sense for the costs that were carried in the P&L this quarter to account for litigation stemming from foreclosures and loan repurchase and all of the like.

John Gerspach

Yes, we've never commented exactly on the exact amount of accruals that we put up for foreclosure litigation as a matter. So we -- that's not something that we deliberately set aside. When you take a look at mortgage repurchases, we did set aside an additional $122 million this quarter for mortgage repurchase reserves and I think there's a page in the appendix of the supplement that, Page 29, that lays that out. So we added $122 million to the reserve and I think the reserve now stands at something like $940 million, $950 million.

Guy Moszkowski - BofA Merrill Lynch

Okay, great. Thanks very much for answering the questions.

John Gerspach

Not a problem.

Operator

Your next question comes from the line of James Mitchell with Buckingham Research.

James Mitchell - Buckingham Research Group, Inc.

Two questions. Maybe one just on the DTA. If I do the math, it looks like you are essentially breakeven in North America. Is it fair to assume that the DTA was pretty flat or with reserve releases, there was some decline? How should we think about that?

John Gerspach

James, the -- Jim, the DTA actually came down $1 billion this quarter, so the DTA reduced from $52 million down to $51 million.

James Mitchell - Buckingham Research Group, Inc.

And that probably comes off the top of the Tier 1 Common, right? The deduction gets shrunk, right?

John Gerspach

Yes. In other words, the disallowed DTA against Tier 1 Common improved by roughly $1 billion, yes.

James Mitchell - Buckingham Research Group, Inc.

Okay. That's helpful, thanks. And just on the asset transfer again, maybe thinking about it a different way. Was it mostly, I guess, number one, mortgage-backed securities that were transferred, and is it fair to assume that a lot of those or the majority of those were below investment grade, so we can kind of back into what the risk weighted asset benefit would be?

John Gerspach

We laid it out on Page 35, I mean, we didn't specify it completely, but you can see how securities that were under held-to-maturity accounting declined by $13 billion in the quarter. And the asset transfer was $12.7 billion.

James Mitchell - Buckingham Research Group, Inc.

No, Right. Understood. But in the detail on Trading Assets, you have corporate in there, you got auction rate securities and you got mortgages, obviously, those all have different risk weightings. I'm just trying to get a sense of how...

John Gerspach

You can see on Page 35, the declines in the HTM [held to maturity] security should give you -- so in other words, corporates came down, corporate loans came down by $3.5 billion. prime and non-U.S. MBS [mortgage-backed securities] came down by $3.2 billion. Alt-A came down by $4.6 billion. All right? So that should give you a pretty good picture as to what's the components of the $12.7 billion were.

James Mitchell - Buckingham Research Group, Inc.

Right. And we can probably assume that the mortgage backs were the highest risk weighted category?

John Gerspach

That would not be a bad assumption.

James Mitchell - Buckingham Research Group, Inc.

Okay. Fair enough. All right, thanks a lot.

Operator

Your next question comes from the line of Ed Najarian with ISI Group.

Ed Najarian - ISI Group Inc.

Most of my questions have been answered but just hopefully two more quick ones. You talked about, as you get into 2012 beginning to return capital. I was just wondering if you could give us any sense of your desire to focus more on dividends or buybacks. I'm thinking with the stock around tangible book or under tangible book, you'd be very focused on buybacks. But I wondered what your sense of that is?

Vikram Pandit

Well, let me take a crack at that, Ed. I think, over time, we do want to get to some sort of a normalized dividend policy reflecting that we're really a higher growth bank than some of the -- many other large banks. So that is one goal we've got. And secondly, I don't disagree with you, with the stock trading below book value, it becomes awfully interesting to think about share repurchases as well, and I suspect, depending upon the kind of regulatory clarity we get, that our approach would be a combination of the two and it's a little early to talk about it as we found out, we all found out we need to wait for clarity from regulators before we move.

Ed Najarian - ISI Group Inc.

But at this point, other than saying it's a combination of the two, you can't give me a sense of preference for one versus the other as you start to return capital?

Vikram Pandit

Again, as I said to you, I think our preference would be to do both and we want to all look at where the regulators come out. I do think that there are -- when you look at the shareholder base and when you look at kind of the signaling aspect of what one does, you've got to be mindful that our dividend policy is also important. Now I can't tell you that exactly how we will approach a normalized dividend policy yet. But don't get me wrong, we completely appreciate the value of the stock and the fact that it's trading below book value. That will be a significant influencer in our decision.

Ed Najarian - ISI Group Inc.

Okay. Thanks. And then just a quick follow-up, we're seeing, as we are seeing in the other big card banks, we're seeing your credit card losses continue to come down very rapidly. Both JPMorgan and BofA have given some outlook in terms of where they would expect card losses to go, say, over the next 12 months or on a sort of a more normalized basis. Are you willing to give us any sense of that? How much more of a decline we might see in card losses?

John Gerspach

I think, obviously, we do believe that the credit -- assuming conditions stay where they are, credit losses should continue to improve. We're probably looking where, on a normalized basis, you think about our Cards business and I'm not going to tell you the time frame, but Branded Cards should be somewhere in the 5%, 5.5% range, maybe a little bit higher than 5.5% range, say, 5.5% range.

Ed Najarian - ISI Group Inc.

Okay. And anything on partner cards?

John Gerspach

I really don't focus as much as on partner cards quite frankly since it's in Citi Holdings.

Ed Najarian - ISI Group Inc.

Right, okay. Okay, that's helpful. Thank you very much.

Operator

Your next question comes from the line of Chris Kotowski with Oppenheimer & Co.

Christoph Kotowski - Oppenheimer & Co. Inc.

Yes, I wonder with -- in Asia and Latin America with a number of those economies raising interest rates and taking other steps to try to slow down what's been a very hot economy, your credit metrics still look good there, we saw a little uptick in the delinquencies in Latin America. But is it your expectation overall that you end up with a soft landing there and then continued growth or should one look for some significant deterioration in asset quality and portfolio loan growth slowdown in those markets?

John Gerspach

No, we're not anticipating a crash and burn scenario in those economies. They are -- there's a couple of them where they've got a high inflation rates. I think there's every evidence that the central bank in each of those countries is focused on that and they're all enacting policies to contain the inflation impact along with trying to also continue to promote their growth. There's a certain cycle that goes on in those economies and we're in one of those cycles right now.

Vikram Pandit

Don't also underestimate the reason why these economies over there -- it's part of a "something's working" kind of story in the sense, they are growing. Consumer incomes are rising. Consumers have more money to spend and so understanding that growth and inflation have to be traded off in the right way, we're here because something underlying in these economies is heading in the right direction and that's still our secular weave [ph].

Christoph Kotowski - Oppenheimer & Co. Inc.

Okay. And then as a follow-up, just was there any major fallout in Japan from the tsunami and all the subsequent turmoil and is there any ongoing impact on your business?

John Gerspach

Quite frankly, the impact on us was somewhat muted. Now, I mean, the secondary effects, I guess, people are still trying to sort through. But specific to us, we took some trading hits the first couple of days after the tragedy. Those losses were pretty much recovered within a week or so. And the other significant impact that we saw in our CitiFinancial business in Japan, we do have a mortgage portfolio. We tried to isolate those mortgages that were located in the 5 prefectures that were most impacted by the tsunami. And so we put up an additional $55 million, $60 million worth of loan loss reserves against that. And we had some private equity investments that, again, they're in Holdings that we're looking to sell down and, I think, we took marks of maybe $30 million to $40 million on those things. So overall in the quarter, maybe $100 million worth of impact, all in Holdings.

Christoph Kotowski - Oppenheimer & Co. Inc.

Okay. All right. That's all for me, thank you.

Operator

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

Betsy Graseck - Morgan Stanley

A couple of questions, one on the NIM. Could you just give us a little bit of a sense as to how the NIM is trajecting in the EM [emerging market] versus the DM [developed markets] space when you talk about the fact there's inflation in the EM side, how are you dealing with that and is that at all a net positive or a negative for you?

John Gerspach

Betsy, I'm sorry, I really -- I don't have it in my head as far as how NIM is going EM versus DM. I apologize.

Betsy Graseck - Morgan Stanley

We'll, I guess, the broader question is in the inflation oriented economies where you're invested, are you seeing an opportunity or a challenge as it relates to the profitability of those businesses?

John Gerspach

We absolutely see an opportunity. As I said, you can see the results of the investments that we've already begun to make in some of those countries as far as growth in loans and deposits. All of that should point to the fact that revenues should be doing quite nicely. The issue for us, you can see in just about every one of our International Consumer businesses, where we're benefiting as I said on those increased investment and the improvement in drivers. But each one of those businesses are contending with other factors at the present time. They're tending to mitigate the impact of the drivers on the top line. Latin America cards, for instance, if you take a look at what's going on in Latin America cards, we do have lower spreads on the new business and that is clearly had an impact on NIM. Year-over-year, our NIM in that business is down about 125 basis points. But a larger impact on the revenue dynamics in Latin America cards really results from the fact that we're still experiencing the effects of a repositioning in our Mexico cards portfolio. So Mexico cards represents about 40% of both our ANR and our revenue stream in Latin America cards. Now outside of Latin America, cards revenues are increasing year-on-year at 20%, while within Mexico, revenues have actually dropped 4% year-on-year. ANR outside of Mexico in Latin America is growing at 19%, while Mexico cards ANR grew 1%. Now we're actually encouraged by the fact that Mexico cards grew 1%. It actually demonstrates that we're kind of getting through that repositioning and so the impact of that repositioning is starting to abate. And as Mexico cards now begins to grow, I think, you're going to see a boost to the revenue growth in the region.

Betsy Graseck - Morgan Stanley

So volumes are beating spread, I guess, is the point. And I'm just wondering, from a NIM perspective, you indicated second quarter is going to be down a bit. When do you see the inflection point there? Is it going to be in the second half? Because in the past, you've talked about second half NIM going up?

John Gerspach

I would say that we're looking towards the second half of the year for NIM to stabilize.

Betsy Graseck - Morgan Stanley

Okay. And then second thing is on the 8% to 9% common Tier 1 next year, in your commentary, are you thinking about specific kind of actions, are specific actions included in your expectations that you're going to be at the 8% to 9%? In other words, are you incorporating into that comment, things like CitiFinancial getting sold and other potential assets that you might have in the docket to be sold? Or is that just from organic changes in the current business model?

John Gerspach

Betsy, it basically reflects our continuing to execute along our plans and our plans include winding down Holdings in an economically rational fashion.

Betsy Graseck - Morgan Stanley

Great. Okay. Thanks.

Operator

Your next question comes from the line of Matt O'Connor with Deutsche Bank.

Matthew O'Connor - Deutsche Bank AG

Today might not be the best day to talk about bringing down excess liquidity just given some of the macro issues out there but you did mention it earlier again today. I appreciate we don't even know what the liquidity rules are out there for you or for other banks. But as you think about what you need, in your opinion, maybe you could size what the excess liquidity is and what some of the opportunities might be, going forward in terms of deployment?

John Gerspach

Well, we have, virtually 25% of our balance sheet is in some form of liquid asset whether that be cash in the bank or highly liquid AFS securities. That's clearly higher than I would expect we need to be on a long-term basis. We'll have to see again how some of these rules clarify before I could tell you whether that's 5% too high, 10% too high, but it's obviously higher than we would expect it to be right now. That's a lot of cash that we can put to work. And as we continue to grow the loan book in Citicorp, hopefully, that's one good outlet. Obviously, as we continue to wind down Citi Holdings, Citi Holdings keeps on filling up our cash coffers. And so it's somewhat of a push and shove as far as trying to, we want to get rid of Citi Holdings, but it's generating excess liquidity that we've got to find a place to put to work. The other thing that you should start to see especially in the second half of this year, as we've said publicly, we're going to let a lot of our maturing debt just runoff and so in the second half of the year, there's probably $15 billion or so of -- I mean, it's $12 billion of TLGP debt that we'll just allow to run off. And so that will also be a way of siphoning off some of the excess cash.

Matthew O'Connor - Deutsche Bank AG

Okay. For all the NIM questions that we got, that's obviously slightly positive for the NIM as that rolls off, I would assume?

John Gerspach

Yes, it is.

Matthew O'Connor - Deutsche Bank AG

And then just separately, on the investments spend that you're doing in the core franchise, as we think beyond this year, is it still at an elevated pace? Is it more of a normal pace? How should we think about how much you're doing now versus how much needs to be done going forward?

John Gerspach

Well, I'm not going to give you a specific answer, which is probably no surprise. But it's going to be somewhat dependent on how successful we are being able to demonstrate the fact that we can actually tie the increased investment spending to revenue growth. North America, I think, you will see some North American consumer. We will have heightened investment spending there compared to what we're doing. That's -- you can certainly hear that in some of the public comments that have come out. So it will be at, certainly, at the levels that we can justify based upon the results that our investment spending that we made to date can justify.

Matthew O'Connor - Deutsche Bank AG

Okay. All right. Thank you very much.

Operator

Your next question comes from the line of Richard Bove with Rochdale Securities.

Richard Bove - Rochdale Securities LLC

I'm a little bit confused as to where future earnings are going to come from. 62% of your revenues is coming from net interest income and it looks to me like that's going to continue to decline because you're indicating that earning assets at net interest margins are going down. On the expense side, it would appear, if you're going to have $48 billion to $50 billion, that you're looking at flat to up expenses. So 62% of your revenues come down, your expenses go up slightly. That squeezes you into getting future earnings out of noninterest income, which really brings you down at trading and probably reducing the reserve further. So is that where the future earnings are going to come from, trading and reducing, if you will, loan losses or is there some other area of the bank which is going to be able to generate higher interest income?

John Gerspach

Yes, somewhere along the line, Dick, I think I confused you and I apologize for that. When you take a look at the future earnings, what you're going to see over the course, certainly, of the next year, year and a half, we're going to continue to wind down Citi Holdings. And unfortunately, Citi Holdings will be a drain on our income for a while, specifically on the revenue line. As we continue to wind down those assets, you're going to see reduced income from Citi Holdings assets. Now at the same point in time, we are actively growing the earnings assets in Citicorp. Again, loan growth in Citicorp, 10% year-over-year. Loan growth in our consumer business, in Latin America, 17% year-over-year. Loan growth in Asia, 16% year-over-year. So all of those are earning assets that you should start to see replacing the revenue, the interest revenue that's being lost by Citi Holdings. It's a matter of pacing as far as the rate of decline in one and the rate of growth in the other. But we would actually think that over time, the mix of our business is going to be more towards the model that Vikram laid out 2-plus years ago, which is roughly 1/3 from Securities and Banking, what you would, I guess, call trading; 1/3 from a consumer business; and then 1/3 out of services, we call services Transaction Services, Private Bank, et cetera. So that is the Citicorp that we are trying to grow. And I'm sorry if I confused you.

Richard Bove - Rochdale Securities LLC

No, I understand. But right now, almost 2/3 of the revenue are coming from one source and that's net interest income and from what I've heard, I don't see how net interest margins are going to go up any time soon. And if you will, reduction in the size of Citi Holdings, is equal to or greater than the increase in the loans from emerging markets, your earning assets are going to continue to decline. So you got a 16% year-over-year decline in net interest income. And at some point, that number is simply going to go up or your earnings are not going to go up.

John Gerspach

Let's talk about two separate concepts. Net interest revenue, gross dollars and then net interest margin percentage. Net interest margin, as I said before, I think, will stay under pressure for at least the next quarter due to some factors. Whether that's the continued spread compression that we're seeing and also, then I've got the FDIC additional assessments. But then, in answer to somebody else, net interest margins should look to stabilize. That's the percentage. Net interest revenue, and again, I don't want to start forecasting net interest revenue. But net interest revenue as we grow those loan volumes in Citicorp, at that growth, the absolute growth begins then to overtake the declines in the Citi Holdings assets. Then you should start to see some growth even on the net interest line.

Richard Bove - Rochdale Securities LLC

Okay. Thank you.

Operator

Your next question comes from the line of Mike Mayo with CLSA.

Michael Mayo - Credit Agricole Securities (USA) Inc.

Just some clarification on the OCI, it went up a lot this quarter and that helped tangible book value. What's the key driver there and should we expect similar volatility in OCI in the future?

John Gerspach

Yes, Mike, two big drivers on OCI. One is the asset transfer that I mentioned earlier. That was $1.1 billion favorable impact to OCI. And then the other significant impact on OCI would be cumulative translation adjustments, FAS 52 adjustments. And that benefited us about $0.04 in tangible book value.

Michael Mayo - Credit Agricole Securities (USA) Inc.

And then a separate question, why are you guys doing the reverse stock split? We all have our reasons why you might be doing it, but I'm not sure we heard directly from you.

Vikram Pandit

I think, Mike, we're pretty clear in our public press releases and other communications. We've got a couple of reasons and one of them is that -- and you've got to talk about not only the stock split, but also our intention in the second quarter to reinstate a, albeit a nominal, dividend . And there are some clientele reasons, one, there are a number of clients who can't buy stocks at either $5 or $10 per share or below those. And then there are some who can't buy a stock without some dividend, those are some of the obvious ones. In addition to that, we do think that it could have an impact using volatility of the stock as the stock prices at a different level. I would also tell you that post the reverse split, both the number of shares outstanding and the stock price are closer to our peers.

Michael Mayo - Credit Agricole Securities (USA) Inc.

And then lastly, S&P put on negative watch, U.S. Government debt. How do you think about the potential implications of that change and that would go to maybe the securities you have in your balance sheet or some other activities. How do you think about protecting yourself?

Vikram Pandit

Well, we're glad we're in 100-plus countries to start with because there is a level of diversification that goes with that. And in line with what our clients need because what that says is, that we really look at our entire balance sheet, that's the first point. The second point is that I haven't really looked at what S&P said this morning, so I don't really have any deeper insight against what we said. But I'd also tell you, I have full confidence in our administrative and our legislative policies to get our country to the right place.

Michael Mayo - Credit Agricole Securities (USA) Inc.

All right. Thank you.

Operator

Your next question comes from the line of Carole Berger with Soleil Securities.

Carole Berger - Soleil Securities Group, Inc.

Bank of America took a charge on their MSRs [Mortgage Servicing Rights] this quarter, citing of the settlement with the regulators and the higher costs going forward for servicing. I know you didn't discuss it, but how do you view higher servicing costs, was there an embedded charge that was material or immaterial in the quarter?

John Gerspach

Yes, Carole, we've taken a look at the consent order, and frankly, we identified improvements that needed to be made in our mortgage servicing operation back in 2009. And so we're actively working on improving servicing dating back to the fourth quarter of that year. As a matter of fact, we had most of the improvements in place by February 2010. Now the consent order does contain some additional things that we'll have to address. But as we've looked at the impact of the consent order, we've estimated that it'll have about a $25 million to $30 million annual increase in expenses for us. So really not that much and we don't expect it to have much of an impact on our MSR asset.

Carole Berger - Soleil Securities Group, Inc.

And what are you carrying your MSRs at now?

John Gerspach

The cap rate, I think, is 1.15%, so we've got a mortgage servicing book of about $440 billion, so it's like $4.7 billion.

Carole Berger - Soleil Securities Group, Inc.

Thank you.

Operator

And you have no further questions at this time.

John Andrews

Great. Thank you, everyone, for joining us again. We appreciate the time you took this morning. The call will be available on replay later this afternoon on the website. And again, thanks.

Operator

Ladies and gentlemen, this concludes today's Citigroup Earnings Conference Call. You may now disconnect.

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