Citigroup Inc. Investor and Analyst Day Transcript

Citigroup Inc. (C)

Investor and Analyst Day

May 9, 2008 8:30 am ET

Executives

Scott Freidenrich – Director, Investor Relations

Vikram Pandit – CEO

Steve Freiberg - CEO of Global Cards

Manuel Medina-Mora - CEO of Latin America and Mexico

Don Callahan - Chief Administrative Officer

Brian Leach - Chief Risk Officer

Gary Crittenden - Chief Financial Officer

Analysts

Michael Mayo - Deutsche Bank Securities

Stephen Wharton – JP Morgan

Guy Moszkowski – Merrill Lynch

Meredith Whitney – Oppenheimer & Co.

Betsy Graseck - Morgan Stanley

Glenn Shorr – UBS

William Tanona – Goldman Sachs

Shirley Leithrow – Grammercy Capital Management

Alan Kowalski – Polson & Company

Aaron Cadle – Firm unknown

Unidentified Analyst 1

Unidentified Analyst 2

Mike Holden – The Boston Company

Unidentified Analyst 3

Hal Levine – BNY Mellon

Unidentified Analyst 4

Presentation

Scott Freidenrich

Good morning everyone and thank you for coming. My name is Scott Freidenrich and I’m the Director of Investor Relations at Citi.

We welcome you to our Citi Investor and Analyst Day. For those listening on the Audio Webcast you’ll want to download the presentation we’ll be going through this morning from our website at CitiGroup.com at the Investor Relations tab. You may want to do that now.

As I mentioned we’ll have a presentation by our Chief Executive Officer, Vikram Pandit and several members from our senior management which will then be followed by a question and answer session and Vikram and other members of the senior management team.

Before we get started I’d like to remind you that today’s presentation may contain forward looking statements. Citi’s financial results may differ materially from those statements so please refer to our SEC filings for descriptions of the factors that could cause our actual results to differ from expectations. Today’s presentations contain certain non-GAAP measures a reconciliation of the non-GAAP financial information contained in today’s presentation can be found at the end of the slides which are posted on our investor relations website.

Today’s program will feature the following: Vikram Pandit, CEO will lead the entire presentation on the strategy and direction of Citi. We will hear from Steve Freiberg, CEO of Global Cards, Manuel Medina-Mora, CEO of Latin America and Mexico, Don Callahan, Citi’s Chief Administrative Officer, Brian Leach, Citi’s Chief Risk Officer, Gary Crittenden, Citi’s Chief Financial Officer. Vikram will summarize the presentation then we’ll open up to a question and answer session.

With that said let me turn it over to Vikram to begin the presentation.

Vikram Pandit

Most of our management team is here today and I want to start out by introducing a few of them. Starting with Ajay Banga, Ajay is a 22 year veteran of Citi and he is CEO of our Asia/Pacific business. Don Callahan, Don is our Chief Administrative Officer who joined Citi in 2007, he was at Credit Suisse and Morgan Stanley before. Gary Crittenden, Gary is our Chief Financial Officer, he joined in 2007 he is not only our Chief Financial Officer but also responsible for all our reengineering efforts.

[Jamie Farese], Jamie started with Solomon in 1985 and over the last 23 years Jamie has been working in our sales and trading businesses and is one of our strongest new leaders runs sales and trading right now. Steve Freiberg, Steve is a veteran of Citi for 28 years and runs our Global Cards business. Paul Gallant, Paul’s been with Citi for 10 years and runs our Global Transaction Services business which is one of our fastest growing businesses.

John Havens, John runs our seasonal client group, joined Citi in 2007 and was with Morgan Stanley before that for a number of years. Lou Kaden, Lou is Vice Chairman of Citi, Lou is responsible for government relations, HR and he provides us guidance on senior executive recruitment. Ned, Ned Kelly is one of the newest members of our team, he joined Citi in February. Ned runs alternative investments. Ned was at Carlisle he was CEO of Mercantile Bank Shares before that.

Kevin Kissinger, Kevin is a veteran of Citi and is our Chief Operations and Technology Officer. Michael Klein, Michael is currently Chairman of our Institutional Client Group. Michael has been with us for over 20 years, is a veteran of Citi and really responsible driving Citi and my client agenda. Sallie Krawcheck, Sally joined us in 2002. Sally runs our Global Wealth Management business that’s one of our most promising businesses.

Brian Leach, Brian is our Chief Risk Officer and joined Citi in 2007. Manuel, Manuel Medina-Mora is Chief Executive Officer of our Latin American business he is one of the most prominent and successful executives in the region a 37 year veteran of Banamex. Steve Volk, Steve is the Vice Chairman of Citi, he is a key advisor to us and our most important clients, he also is responsible for Citi’s own M&A activities.

Terri Dial, Terri will join us shortly, she’s officially gardening today. She’s going to be the head of our Consumer Banking efforts in North America as well as drive our global consumer strategy. She’s a 35 year veteran in the retail banking business, great bottom line results; I’m excited to have her be part of our leadership team.

We all know this is a people business; it’s a business about making sure we have the right people in the right places doing the right things. There is a broader team that is our leadership group behind the people we talked about. What I want to make sure you know is each of us in this group is jointly and personally responsible in making sure that we’re successful as an organization.

This is one of the world’s greatest entrepreneurial opportunities and I believe its one of the world’s greatest business transformations and I know this team will get it done and it’s up to us to show you that this is a championship team. Let me talk about what I’ve done over the last five months since I became CEO.

First we have established a very strong capital base for today and the future. Our Tier I pro-forma ratio is 8.8% and we raised $42 billion since the fourth quarter last year. We continue with asset sales in non-core businesses as well as by selling other financial assets we sold Citi Capital, we sold Citi Street. We’re driving asset productivity and we’re driving capital allocation. We believe that excess capital is strength in this environment.

Two, we have reduced risk and will continue to do so in the most shareholder friendly way possible. We have a new risk organization Brian Leach is our new Chief Risk Officer. We’ve hired six new senior people in Risk, nine of our fourteen senior risk managers are new to the role and each of them have over 20 years of experience in the industry. This is a world class risk organization.

We made good strides at driving efficiency last quarter for the first time we had a quarter over quarter sequential decline of headcount. We had a quarter over quarter sequential decline in costs. We have a functioning reengineering effort under Gary’s leadership. Gary is working with Don and Kevin and Carl Levinson to put us on track for substantial reductions both in costs as well as other resources and Gary’s going to talk to you about that today.

Four, we identified our legacy assets. These are assets that are not core to our mission going forward and will be sold or run off over time. This will create capital we can reinvest in our core businesses. Today almost $500 billion of our assets are such assets that’s 22% of everything we have. Gary is going to give you details on the wind down strategy.

Five, we’ve identified our core assets and our core strategy that’s really what we’re here to talk about today. We’ve arrived at this in a very dispatched and a thorough way with no preconceived notions for the right strategy, no preconceived notions for how we maximize shareholder value. Let me just say that today if we were in a normal environment we’d be generating $20 billion plus of earnings for our common shareholders which today is 16% to 18% on our total capital of $129 billion.

Over time we believe our revenues will grow at 8% to 10%. We’re planning $15 billion of reengineering benefits as part of our continuous efficiency improvement effort along with these efficiencies and everything else we’re going to talk about today our goal is to increase our ROE to 18% to 20%. By the way, we’re focused on high quality earnings. We believe these will be very high quality earnings as you will see when we talk about them today.

Six, we have re-organized the company to have an operating structure that is consistent with our strategy. We’re a client based organization with a regional structure. We are product basing organization with our global product structure and we’re an efficiency conscious organization with our centralized functions. We have clear leadership; we have clear decision making authority and collaborative partnership between products, reasons and functions.

Seven, we formed a leadership team to drive execution. Key talent continues to join us. Terri Dial, [Paul McKennon], [Mark Rafay], Richard Evans, Derek Bamber, others. Success requires having the right people in the right places doing the right things and we are executing on that. In fact, we’re delivering on the number of priorities that we talked to you about as you saw in our first quarter numbers.

Let me say that almost everything we’ve done so far or we’re executing on so far is what I consider to be stage one. Stage one to me is all about getting fit. We’re focused on exiting our legacy assets, we’re focused on returns, we’re focused on driving asset productivity, we’re focused on managing risk and we’re focused on reengineering our cost base. There are two more stages and I do consider these stages to be overlapping to some extent.

Stage two is about clear goals, strategy and structure which is what we’re going to talk about today. Every area or city has to have a business model that is consistent with the strategy. Stage two is about restructuring our business models where appropriate and executing against these models. We’re in the process of addressing every business model to make sure that we’re executing in a way that allows us to achieve our objectives. This will take some time.

Most importantly execution against these models will take some time because they can in some areas represent shifts or restructuring as we drive quality of earnings. When we are ready we don’t mind setting up other sessions like this if we believe there are some important changes to business models. Stage two is about clear goals, strategy and structure; it’s about getting the business models rights, its execution against these models in a transparent way and with accountability. In short stage two is about restructuring Citi and let me emphasize again as we do so we’re going to improve the quality of our earnings.

Let me talk about stage three. Stage three to me is about delivering the full value of Citi to each and every one of our clients and customers. It’s about leveraging and fully integrating our model from a client infrastructure and risk perspective. In this stage we’ll have made substantial progress on the following goals; one implementing a compensation evaluation system focused on execution. Two, creating a culture based on meritocracy, teamwork and integrity.

Three, creating a relentless focus on talent and building an environment where the best simply do better.

Four, linking the creativity of our people worldwide to deliver exceptional value and services ahead of any competitor. Five, harnessing Citi’s information advantage into insight that can help us get ahead of both risks and opportunities. In short, stage three is about maximizing Citi.

Let me summarize again the three stages. Stage one is about getting fit, stage two is about restructuring Citi, stage three is about maximizing Citi. Just managing down legacy assets and focusing on getting fit represents significant earnings power. Restructuring will improve the quality of those earnings and finally the power of the last stage can be very, very significant.

I do want to leave you with three important considerations still. One, these three stages can be overlapping. Two, this will take time; there will definitely be some early results but it will require patience there may be some mid course corrections. Three, the earnings power we’re going to talk about today does not fully capture the potential of Citi when we get all the three stages right.

Let me start by talking about Legacy Assets. As I’ve said I conducted an extensive review of businesses simultaneously we’ve taken some important steps. We identified about $500 billion of Legacy assets which we will reduce in an orderly fashion over the next few years. Some of these Legacy assets are those on which we have been taking significant marks and we have discussed them at length in our earnings calls.

We look to manage these down either by holding them to maturity or through orderly sales. Most of the assets we have there do not fall in these category and they’re ones that simply don’t produce acceptable returns. Such as our Prime Real Estate assets, most of these will roll off. Other assets that are up there are good businesses, these are businesses that we think would be more valuable in somebody else’s hands because they just don’t fit our strategic platform.

You’ve seen us divest Citi Capital, Diners, Citi Street, there will be more. The chart on the right gives you a sense of the composition of the products and these reductions will release capital which we could redeploy in our core businesses. Gary is going to talk about this more in detail in your presentation. That leads us to Core Citi.

Let me talk about Core Citi. Core Citi has the following attributes; Core Citi is focused on risk adjusted capital, focused on returns on risk adjusted capital, focused on stability of returns and growth that is consistent with the above two. Core Citi has 75% of earnings coming from high growth, high return annuity type businesses, and 25% coming from more volatile businesses. Core Citi has a unique global presence. Core Citi is focused on international growth particularly in the high growth emerging markets where we have a very large and significant advantage.

Core Citi has five distinct platforms; four of them are global platforms. We are a global universal bank with a clear value proposition for our clients and an unparalleled brand. The slide that’s up there right now shows that the projected growth for financial services in Asia and Latin America is about 10% to 14% which is double the rate of growth in the US. Slide nine shows you that we have a powerful presence in those emerging markets, 32% of our revenues have been driven by emerging markets.

On the right you can see that 75% of our businesses are annuity product businesses. Let me now take you through the five distinctive platforms. Global Wealth Management, Global Cards, Consumer Banking, Securities and Banking and Transaction Services. All but the consumer business will be run as global businesses because that’s how our clients are organized and that’s how they want to be served.

Consumer banking is a local business and so we’ve organized it accordingly. Each of our four global product platforms are squarely positioned against global growth in trade flows, capital flows, payments and wealth creation. Consumer banking is very well focused in the highest growth areas of the world. We’re top three in every category with a bias towards growth. Let me now talk about the wealth management business.

GWM is a great business, individual wealth is growing rapidly around the world. We’re well positioned to capture this growth because as the bottom chart shows we have leading positions in North America and in the fastest growing market in Latin America and Asia. In fact, we’re the second largest wealth management company in the world with $2 trillion of client assets. We’re number one in Asia; we’re number two in Latin America. We continue to grow this rapidly and this is a very high ROE business.

In the US Smith Barney represents the bulk of our business. Overseas of course the private bank represents the bulk of our business and that’s performing very well. In fact, our private bank serves over 30% of the Forbes Billionaires List. Sallie Krawcheck is working on strategies around different client segments for the high net worth clients her team is moving towards creating a distinctive and efficient product and service offering regardless whether you’ve been served by the Private Bank or Smith Barney.

On the high net worth side we believe there is a big opportunity to build out this segment through adding both private bankers and officers in certain parts of the world. As well by leveraging our investment bank something that we’re going to put a lot of focus on. We’re also working to create the right product and service model for our emerging affluent clients. When Terri joins us we’ll be asking her to work with Sallie to explore how we can leverage our retail bank to create a better value proposition for our Smith Barney clients.

I’ve also asked Sallie to think about how our wealth management business can provide products and services to our Citi Gold customers throughout the world. Citi Gold customers are our affluent retail banking customers and I know we can do better for them and with them if we offer them the right value proposition. The business has been performing well but we think there’s huge potential here and I consider it to be amongst our most promising businesses.

For all of us in this room here are some of the metrics we’ll be focused on in this business. In the Smith Barney business the basics are client assets, net new flows, revenues for FA, client assets in C based accounts and pre-tax margin. Over time you’ll see us adding other metrics to support our fully integrated strategy with other businesses so for instance we’ll form targets for our cross businesses with investment bank and also for capturing more retail bank business from our Smith Barney customers.

Let me turn to Cards. Cards is another great business. The top graph shows the payment industry is growing at a double digit pace. The number of transactions is projected to grow significantly faster internationally with growth rates of 18% to 19% in Latin America and Asia. We’re uniquely positioned to benefit from these trends with 8,500 global branches, 300 plus partnerships and an unmatched set of product set of product expertise and global presence.

As the bottom chart shows we are the largest as measured by managed loans and the largest outside the US. Our international position will allow us to outgrow our competition. We’ve changed how we’re managing our Global Cards business. It used to be two distinct businesses, US and International managed separately. We’re now managing this business as a Global monoline. As the global monoline we can leverage the scale and intelligence of the very successful US business and put that into the international business.

We can also make sure that we’re properly positioned to ensure that we’re at the forefront of innovation around global payments, a business that we’re very excited about. I’m convinced that this new structure will be a huge competitor advantage for us especially versus local competitors outside the US. You can see at the bottom of the chart that we are the number one card issuer in the world. Our receivable growth was 13%, second only to American Express. The international franchise of course is a jewel, its growing at over 20% and our target is to grow in the low double digit range.

The US business on the other hand has lost market share over the past few years. It looks to me like we had a lack of commitment to the business after studying the business we’ve decided not only is it an attractive annuity high return business but we think we can grow it. In a moment Steve Freiberg will come up to talk to you about the specific points on growth by I do want to highlight a few things.

First I want to tell you that we did make some mistakes. The company cut back on marketing. I think you know that if you cut back on marketing you’re going to have a tough time producing a lot of growth in your portfolio. That said I begin by telling you that you’ve got to de average the portfolio and when you do so you’ll find that there are some older portfolios that in our view are in the harvest mode and the others are having a lot success.

While in aggregate the business may seem dormant that’s not what you find when you de average it there’s a lot of growth inside the portfolio. The other thing I would say is I think that opportunities to take out cost both as a result of the global monoline as well as from our other reengineering. The mandate that Steve has is to take some of those savings and put them back into marketing where appropriate because we’re fully committed to growing the business in the US.

I also want to address this notion that somehow we have a competitive disadvantage because we don’t have 5,000 branches in the US. As you would expect I looked at this thing very carefully and sure if we had 5,000 branches we’d hand out a lot of cards. Even if we had the ability to do so it wouldn’t be large enough to support our growth strategy or for that matter anybody else’s whole growth strategy. We think we have a competitive advantage that others don’t have that compensate for that smaller branch footprint.

As far as metrics are concerned in Global Cards I would point to managed receivables growth, net account growth, net credit margin, return on managed receivables and ROE. On that note I’m going to ask Steve to come up and discuss some more of the issues.

Steve Freiberg

During my brief presentation I will strive to provide you with a deeper understanding of an extraordinary Citi franchise which is our Global Cards Business. Broadly we are focused on the element side of the action plan on the screen although today I will specifically focus on our unique footprint and powerful global distribution network, the positive trend of asset growth and the improved revenue momentum in our North American Cards business and the leveraging of innovation to transform our Global Cards and Payments business.

First on distribution, Citi maintains the world’s largest distribution network with an unrivaled ability to generate quality card members. Globally we have 8,000 branches in excess of 300 partnerships with 16,000 external sales agents and a strong and growing internet platform. In 2007 we acquired 38 million new accounts worldwide that was up 50% from 2005 with 18% net total account growth in open accounts over the same period.

In fact, geographically we are best positioned to outgrow our peers as we are present in approximately 50 countries and hold the top three position in over half of them. Our cost to acquire new customers is significantly lower than our peers and has actually been decreasing it has decreased by over 30% since 2005. As you can see from the bar charts in both North America and International we are over weighted towards lower cost partnerships and point of sale acquisitions as well as direct sales agents and a significantly decrease our reliance on higher costs direct mail.

In addition, we are focused on accelerating our growth on the internet and have made solid progress on that front. On to the issue of relative size of a branch footprint in North America and its competitive implications is a fact raised. While it would be helpful to have more branches in North America it should be noted that we do have 4,100 branches within this footprint 1,000 are retail bank branches, there are 2,500 Citi Financial or Consumer Finance branches and over 600 Smith Barney branches.

To put it in context Citi’s branch businesses sourced approximately $0.5 million new card members in 2007 and we expect that number to double by 2010 but that said if you look at JP Morgan they sourced $1.1 million new accounts through their branches in that same time frame. It may be a larger number but it still only constitutes 7% of their total acquisitions in that calendar year. Thus branches, whether it’s JP Morgan and/or Citi whether it’s our domestic franchise or whether it’s our international franchise tend to have a limited impact on overall cards acquisitions.

As you can see from the chart our experience in North America parallels what we have done internationally. Finally, we are very satisfied with the quality of accounts and the returns generated by this distribution model. Return on assets or ROTA after tax in the US franchise between 2004 and 2007 has raised from 200 to 250 basis points again that’s after tax. With point of sale including private label returning to same and or better than the other channels. In addition, for international our ROTA as you would expect has averaged in excess of 500 basis points over the same time frame.

Let me turn now to the North American franchise. From the chart you can see that managed revenue growth and it is managed revenue growth the growth trend in our North American franchise has been improving and has significantly improved over the past six quarters. Essentially we have underinvested in marketing relative to our peers since 2004 and as one might expect we have grown slower or at a slower pace than the market.

That said, we have taken higher returns on and in fact have invested more globally in our Cards franchise. We have worked hard to retool the North American business during this period to having that observed change in trend. Essentially we focused on four levers. We migrated acquisitions away from direct mail to other lower cost higher quality channels such as point of sale with partners, the internet and our branches as well.

In addition, we invested in higher growth, higher return segments like small business. Some of our selected partners, the travel, the affluent and in fact within North America Canada which has been growing at double digits has been a very good market for us. We have maintained and/or harvested some of our slower growing slow returning segments during this period as well and we’ll continue that.

In addition, we shifted discretionary marketing spend from new account acquisition to deepening existing relationships with very large account base in North America, spending more on leveraging that base which is more effective in finding the next new customer. Finally, we reduced our investment in acquiring lower yielding assets by significantly reducing the use of balanced consolidation where typically you’re basically giving people below market rates to get them into the franchise.

In summary, we will continue to follow this enhanced model and expect to gradually increase our investment spending with funding driven primarily through reengineering efforts where we have a proven track record. Let me turn for a moment to innovation.

Innovation is absolutely critical to maintaining our long term leadership position in Cards while enhancing our position in the more broadly defined payment space as profound changes are impacting our industry. The primary fact is that are reshaping our industry include shifting of spend to online, think Travel. Unprecedented growth in debit and electronic transactions and transfers. Mobile altering the old paradigm. The rising importance of global intermediation including the small business and the consumer.

The growth and importance of new demographic and geographic segments emerging and real time information truly become a competitive edge. We have many exciting innovation efforts underway that I will now provide you with several examples. Mobile provides the opportunity to put the full dynamic of the Cards Company and/or the Consumer Bank into our customer’s hands thus enhancing our ability to expand the payments universe, attract a passage remotely and leverage information to increase relevancy.

Specifically person to person mobile payment trials in both Chicago and Boston with Obopay have been underway for a while really setting the stage for a new market opportunity or a new universe in person to person or p-to-p payments. We also have a joint venture with SK telecom which is the largest wireless carrier in South Korea and that platform has true global applications. Technologies under development include mobile phone tap payments, budget planning and expense management on the phone. Location based advertising with real time discounts and person to person payments.

We are also partnering to improve industry leading value propositions. A few examples, with Expedia the leading online travel service the customer experience during the site visit will include inline pop up offers that provide real time discounted travel as customers apply for instantly approved Citi Credit Card which will of course include thank you points. As almost 15 million shoppers come each month to the site.

Another example with Live Nation Citi is now the official credit card partner in an alliance with the world’s largest integrated music platform which will provide actually starting in the month of May our clients, this is beyond credit cards, access to online ticketing and concerts as our customers enjoy preferred access and pre sales which gives us a point of difference and premium or VIP tickets. Live Nation just prior had been Amex’s partner in this space.

Let me spend a moment on new ecosystems. We have a venture with Smart which is Singapore Mass Rapid Transit which began in late 2006. We launched the Citibank Smart Visa Platform as the first two in one card in Singapore with contact with easy link functionality for transit payment as well as regular Visa functionality at merchants. Subsequently we launched the first three in one card with Debit ATM and Easy Link functionality in the following year which was late 2007.

We then created Singapore’s first travel rewards program where customers redeem points for free Smart tickets. The system also features tap and go technology and instant issuance. We are now and have actually recently launched a very similar effort in India and plan this summer to also launch in Hong Kong. It has great leveragability around the globe.

In summary, Citi has the largest and most profitable credit card franchise in the world. The formation of the Global Cards Group will eliminate the card product silos thus enhancing our ability to capitalize on our scale, our intellectual capital and our number one cards brand. Our global footprint and unique distribution model are clearly sources of competitive advantage with unrivaled local reach, unique global value propositions, importantly 100 years of experience in global underwriting particularly where there are no credit bureaus and rapid sharing of best practices globally.

The Global Cards market has attractive growth potential and that includes the US. The broader payment space offers even greater potential and we will continue to innovate to capitalize on these payment trends.

Vikram Pandit

Let me turn to Consumer Banking, the top graph shows that the emerging market middle class is expected to grow to $1.2 billion by 2030 compared to $400 million 2005. As you can see in the graph at the bottom we’re well positioned to capture this trend. We have a leading market position in Asia and Latin America. While we’re managing our other platforms globally as you know Consumer Banking is truly a local business.

In Mexico for example the Banamex shows we have strong local franchise can be made even better by leveraging Citi’s global product expertise and global distribution. We’ve structured the Consumer Banking business to compete aggressively in the local markets; our regional CEOs are going to drive that on the ground. Ajay Banga in Asia, Shirish Apte in Central and Eastern Europe, Bill Mills in Western Europe and Manuel Medina-Mora in Latin America.

As you know Terri Dial will be heading Consumer Banking in North America as well as Global Consumer Strategy. She’ll be collaborating with our other CEOs to ensure the consistent implementation of best practices and global standards. The strategy for Consumer Banking is somewhat different in the US versus Internationally.

Let me talk about the International strategy. The Universal bank model is truly compelling and Manuel who has achieved great success with the model in Mexico will speak to it shortly. The strategy is to take Manuel’s model and replicate it in other markets with similar opportunities where one can get strong market share.

We’re also focusing on some key high growth markets where we have a very leading market position. In addition to that we’re growing in Taiwan, we’re growing in India, we’re growing in Brazil and we’re also growing in customer segments such as emerging affluent. A great example of leveraging the global franchise is the work we’re doing in Citi Gold. We’re serving over one million Citi Gold customers with our global banking footprint.

Our Citi Gold revenues abroad have grown by over 27% in the last three years. Citi Gold clients tend to have a deeper relationship with Citi. These are affluent clients and we’re squarely positioned to benefit from the significant growth this opportunity represents. A key initiative with this segment is to serve them not only with Consumer Banking but also Wealth Management products.

Let me turn to the US strategy. Actually what matters is what Terri’s going to put in place once she’s here but let me give you some initial views on the business. First I do want to remind you that in the US we do have a very successful consumer finance franchise. We have a very different credit model at Citi Financial then our other lending businesses. Over time this business generates relatively high returns and it has consistently produced good growth for us.

Our strategy for expansion retail banking is centered around key MSAs where we have or our close to having leading market positions. We want to be in those areas that leverage our total franchise. As you know our operating efficiency ratio is high. You can be sure we’re going to be focused on improving this.

Let me talk next about Securities and Banking. The top left chart shows that financial assets are projected to grow at a 9% rate in developed markets and 17% rate in emerging markets. The chart on the top right shows that the share of market capitalization of emerging markets companies is projected to increase from 6% in 2001 to 24% in 2012. We have trading flows in close to 90 countries. The opportunity is ours to capture since we are a big factor in the fastest growing areas of the world.

The bottom graph shows that our revenue share in every category is strong and we hope to grow them. John Havens recently took over as the head of the Institutional Clients Group and it’s fair to say we’re looking at everything to determine what the right strategy in the business model is for us and what we need to do to produce greatest value from this business.

The volatility in this business and the overall returns have been unacceptable and its clear to me we need to restructure our model. That said, I would also add that the entire industry in this area is transforming and searching for a future and we are positioned in the best areas the highest growth areas such as the emerging markets. Our emerging markets business is huge we have been growing at 30% to 40% for the past few years.

We also know, by the way, that the investment banking business model is likely to come our way because of changes in capital, changes in liquidity, and also the regulatory environment. As John has been in his seat for only a month we’re not ready to tell you about everything that we’d like to do here but I do want to make a few key points.

The first point is that we’ve got to protect our franchise and Brian Leach is going to talk about this. You can be reassured that we will properly understand the risks we’re taking and if we can’t get that right nothing else I’m going to say is going to matter. My second point is that we’re going to reposition our business so that it is driven by talent, execution and risk adjusted returns.

The third point is that while we have a lot of costs to take out we also believe we’ve got investments to make. Some of the investments will mean technology; some are going to be to fill some significant gaps in our product portfolio. Of course that means that we’ll invest in talent as well. We want the right people in the right seats. We do have some major product gaps. In equities our growth is weighed down by the fact we don’t have a sizable prime brokerage business, a derivatives business or a sizeable electronic trading platform.

Some of you know these are businesses that John Havens and I built at Morgan Stanley and we’ll get it right here. Commodities are another large product gap and we’ll be working on this to build it out. We must address this product gap not only to make sure we’re properly positioned for growth but because we also need the diversification in this business.

The next point is we need to optimize our balance sheet, more so in this business than in any of our other businesses. Going forward we’ll be charging for capital any time and anyone requires it for a transaction. You’ll also see us exiting unprofitable client relationships. You may hear noise about this. I think these are good noises. This is going to allow us to deploy more resources against the right clients and against the right transactions. As I said, our future model will be built on talent, execution and risk adjusted returns.

We have two goals for this business. A financial goal which is ROE our target is 18% to 20% although for us as for others it’s likely to be lower clearly for the next couple of years. We also have a franchise goal, no corporation, no government, no institution, anywhere in the world could want to make a significant financial decision without coming to Citi first.

Let me talk about our alternatives business. I’ll do it quickly. We have a large book 54 billion with 80% of this representing client assets. Over time we believe this should also be an 18% to 20% return business just like Securities and Banking. Again in the near term we could be lower than that for several reasons. First we don’t expect environment for private equity to be friendly for harvesting. Secondly, this is a business that also needs to be repositioned to generate greater profitability.

We need to increase our efficiency. Tier II will use those efficiencies to self fund new capital expenditures. We also need to strengthen our distribution and we are continuing to shift from proprietary capital model to an agency model that is client centered. Having said all that we have some really good products.

Our private equity products, the international private equity product, emerging markets products, real estate fund and we’ve got some new things that are extremely promising such as our infrastructure fund. As I said, over time this should be an 18% to 20% return business; it could be lower for the next couple of years.

Let me turn to Transaction Services. As the chart on the top left shows trade flows are projected to grow at an annualized rate of 13% until 2012. Of total multi-national companies in 2012 29% are expected to be in the emerging markets as compared with 21% in 2002. Transaction Services is amongst our highest growth and highest return businesses. It also has the unique capability that sets us apart in the marketplace.

GTS is at the center of many, many of our institutional relationships. Our strategy has been to capture the multi-national segment and top tier clients and we’re doing that. We have 479 of the top 500 global institutions. Our client’s growth strategies also are being driven in many cases by the same globalization trends as ours. We’re amongst the only global providers of the services that they need.

We’re on the ground in over 140 countries and we’re the only provider that can serve clients in these many markets with a consistently global solution. The treasure of a large multi-national whether in Hong Kong or London or New York or Sao Paulo can see the company’s cash position everywhere around the world. We serve Shell Oil in 70 countries; no one else can do this.

As a result of this as well as our industry leading technology our clients are consolidating their relationships with us and we’re gaining business as the complexity of deals is increasing. We’ve grown revenue in this business by 23% over the last four years and while the expansion in trade has contributed to this we believe that most of the growth in GTS is being driven by sales winds which have grown at 20% a year over the last five years.

Last year in the cash business alone we had business wins representing more than $1 billion of revenues. This year our pipeline tells us we’re going to exceed that. One more thing, the cash business is very fragmented and even though we are one of the largest in the business we have less than a 3.5% global market share. We’ve got plenty of room to grow in terms of market share.

Besides this natural growth and growth as a result of our global franchise and industry leading technology we’re also focused on innovating to provide high value, unique solutions for our clients and customers and we’re leveraging our distribution. We are forming innovative partnerships including wide labeling our services just last week we had a very large business win on wide labeling with a very large financial services company.

The final point I’d make on this business is we are investing in this business. As a matter of fact, as a result of business reviews we made a decision to invest an addition $300 million in GTS this year. All of you, and all of us as shareholders the metrics we’re going to be focused on in this business our growth in deposits and assets under custody as well as pre-tax margins.

Now that I’ve taken you through our five businesses let me tell you how we’re thinking about them as a whole. We’re in 106 countries; we’re a significant factor in emerging markets Asia, Latin America, Eastern and Central Europe. We have significant business and developed markets. These businesses can feed on each other. This brings me to a very, very important strategic point.

We believe the right model is a Global Universal Bank. This is a model that delivers the most shareholder value and is fundamentally different, fundamentally different than a conglomerate or a financial super market. We are neither. Universal Bank may mean many things to different people let me tell you what it means to me.

First, the Universal Bank model is the only model that creates true value in emerging markets which have less developed capital markets. The only way to fund operations is through deposits but let’s spend a minute on this. If you have deposits you’re going to have to put them to work its nice to have a corporate bank and a trading business.

You can’t have a trading bank and corporate business without knowing whether you can secure funding and these are less developed market makes complete sense that the dominant model is Universal Bank go around the world. The best ones are exactly the Universal Banks.

In developed markets while all models by the way can work in great market we’ve seen that any model works in a good market. When you look at what we’ve just gone through the Universal Banking model is the right model. Just ask our clients, for that matter our regulators. The economics are clear to me the best value created is through a globally integrated financial services structure and by operating a fully integrated company we add extra value to our clients which creates extra value to our shareholders.

It should also make it interesting and an exciting place to work and hopefully more lucrative place for our people. It’s clear that a Universal Banking model is the right model in many countries, many regions. We have unique opportunities not only to deliver against that in these countries but also to be the first real global universal bank that can implement the strategy in a way that every one of our clients can take full advantage of our global resources.

The question is what does it take to execute on a Global Universal Banking Model. One, it’s about having the right organizational structure to serve our clients optimally. We’ve just done that. Two, it’s about having the right products. Let me give you a couple examples. When you go to an emerging market the entrepreneur who is our private banking client also runs a corporation which is our investment banking client and many of those cases the entrepreneur wants to make sure that employees are served by our Consumer Bank and so we had bank at work, works beautifully well.

There are many, many, many such examples in the entire organization. Three, it’s about an efficient global infrastructure and I’ve got to say we haven’t yet seen how meaningful an advantage this is. That’s because the infrastructure of this company has never been fully integrated. In a sense the 1998 merger was never completed. Each business has been operating with its own back office, with its own middle office and Don’s going to talk to you about some of this in a few minutes.

Let me also tell you we have 140,000 people in IT and Ops. We have 16 database scanners, we have 25,000 developers. This results not only in waste but doesn’t give us any opportunity to leverage our organization. So that’s massively inefficient. We’re finally going to merge it all. Four, it’s about the right incentives and culture for our people. We have great people.

The new organizational structure is nominally designed to encourage collaboration but to require it. Those who don’t collaborate and behave as team players will not likely be successful at this company. That is how we think about the Universal Bank, this is a model that provides us with the opportunity to maximize Citi and over time I believe it will change the game in global financial services.

I’m going to ask in a minute Manuel Medina-Mora to come up and speak about how this model works particularly in our emerging markets. I believe Manuel in many ways embodies what we mean by the Universal Bank. He’s the Universal Banker, he has successfully executed on this model, and we’re going to translate that around the world.

Manuel Medina-Mora

Over six years ago Banamex became a part of Citigroup. At that time we decided to merge all the different business units of Citi in Mexico into Banamex under its Universal Bank Model. How does this model work? What are the key elements that define it? To start, all business work together to provide financial solutions to our clients. We align all our resources across businesses and across products to offer integrated services to our customers.

A key element, common distribution network, from branches to bankers. All channels serve our customers in an integrated manner. We were able to successfully leverage on Citi’s global capabilities. In less than two years we were the leaders in private banking, capital markets and investment banking, areas in which Banamex was never a leader in Mexico.

Universal Bank is a relationship driven model in which we always strive to deepen the client relationship. Therefore, naturally builds a strong deposit base from consumers DDAs to transaction based deposits. A key driver generating new customers and deepening through cross marketing the relationship with our clients. By nature introduced a balanced business portfolio, diversified earnings.

How does it work? In the six years since the integration we have more than tripled our earnings in Mexico. Two years after we joined Citi we were invited to run the Latin American operations. We have gradually developed them into the Universal Banking Model. To start we focus on those countries that had the best risk return profile in the region. Over the recent years we have used different approaches to accomplish our goal, create Universal Banks in the best strong economies in Latin America.

In Central America through acquisitions, Uno and Cuscatlan and the integration of them with our own operations we are creating one of the leading Universal Banks in that region. In Brazil and in Colombia through an organic growth strategy we have multiplied by more than four times our footprint and our business volumes in just four years. In Chile through our joint venture with Banco de Chile we are transforming our participating of 3% market share in that country to a 50% control stake on a Universal Bank that commands 20% of that banking market.

Three different ways to get to the same goal. That of creating Universal Banks in our priority. As the strategy has to go, we become not only a more relevant player in several local markets we have came also the leading corporate and investment bank in the whole of Latin America. What have we accomplished? What are the results?

We have increased our branch network by 50% in the last five years, 700 branches by organic growth and 200 branches by acquisition. By about the same percentage our sales forces and the number of our bankers in the region. We have consistently invested in the future. In the same period we have increased by more than 10 million our customer base. Our franchise in Latin America where we now serve more than 30 million customers, a significant number for that region of the world.

We have also expanded our loans and deposits, our business volumes by close to 80% in these five years, with a strong core deposit base. In terms of our results I’m not including the gain on the sale of our Redecard we had in the same period double our revenues and more than triple our earnings. As you go down you see the model working. Expansion on business platform bankers, expansion on business volume and much more expansion on revenues and bottom line.

How do we get these results? What are the financial drivers behind the model? First it improves significantly our asset productivity. Since it’s not a risk intensive model but rather a relationship intensive one it has allowed to significantly increase our revenue to us at ratio. Transaction based deposits, fees on capital market transactions, advisory assignments, consumer business generated by CD at work, private banking business, products, a whole array of financial services that increases revenues faster than assets.

On top of all this a key advantage of the Universal Banking Model, the regional CEO has a unique observation platform. He or she has the view of all business opportunities across products or market segments, in a country and in a region. Capital allocation is simpler when you have the view of all risk adjusted returns of different products.

Secondly, a Universal Bank Model brings significant operational synergies from common distribution networks, a unified treasury, and the integration of middle and back offices and shared support service. It runs as one bank not as a collection of diverse businesses. It has positioned Citi Latin America as the most profitable international bank in the region, by size of profits, by return on assets, by return on capital.

Let me finish by stating again what we aim for with this model. A customer centric relationship driven bank with a balance and diversified portfolio in high roll marks which implies a simpler, leaner and more efficient organization that delivers consistent earnings growth.

Vikram Pandit

Manuel’s been executing on the Universal Banking Model in Mexico, is exporting it to Latin America, its working and we’re going to export it around the world. That’s why we’ve set up the organization structure with our regional CEOs; everybody’s spending time with Manuel to do that. Others have done it as well. On a broader basis how are we going to do it as a company? As well, what are the changes that have been made and what is different today to allow Ajay and Shirish and Bill and the entire company to execute against this model that Manuel executed on versus where we were before.

Don Callahan

I’m fairly new to Citi but one of the first things I was told is never follow Manuel and now I know why. I could summarize my discussion of the organization by saying whatever he just said that’s the organization in living color. Let me give you an understanding of the new organization by stepping back to December and telling you what happened really within the first few days of Vikram becoming CEO.

Really the first thing that happened is we called our families and said we had to take a pass on this years holidays, we jumped in some planes, we started going around the world and we started this passionate business review. I hear him called this passionate business review I was in all of them. They were passionate; we found the business leaders loved their businesses and the deeper we got into these businesses we could understand why.

We had to step back and say what’s wrong? How come it’s not hanging together? It was very clear to us it was how we were organized. We didn’t leave adjusted our view; we started talking to clients really listening to clients and asking them to tell us what they thought we needed to change. We also listened intensely to our people and we came up with some very common themes that could not be ignored.

The first theme was that we are silo driven organization and in some cases sub-silo. We also came up with the fact that the decision rights were not clear and at some points confusing. It turns out that the farther you were away from New York the harder those decisions rights became. In fact some of them were quite candid saying the decision rights are coming all the way back to where you’re sitting today 399 and they don’t have the power to drive on behalf of their clients. We knew this wasn’t the right model.

The last thing in terms of a broad observation was around culture. We listened hard when it came to culture. Sure there were great cultures within the entire Citi organization. There was Solomon a traders trader, there was Schroeder’s the service level of client relationship second to none. There was our banking culture of a client relationship. There wasn’t one culture that you could feel across Citi. We knew we had to address that.

Perhaps the best way to think about addressing that was to step back even further and look at an organization and this is not meant to be an organization chart but more as a concept of how was Citi organized. It may be familiar to you. It was a set of silos by design it was a set of business leaders in each one of these where they had responsibilities for their revenues and expense and overall profitability and they ran them well.

In fact, if you think about Citi, when Sandy was leading it each of these businesses had very strong returns and the economics to the shareholder was quite nice. There was something that was being left on the table that was clear to us is that it wasn’t integrated and we felt that the environment we are in right now we really believe that was part of what we needed to do to un-harness it.

The first thing as we started to look at the organizational construct we had an understanding of our strategy and how we had to put the structure in place we looked at what is our competitive advantage. It was clear our global footprint was second to none. We’ve been in most of these countries and now we’ve been traveling around throughout the winter and the spring and being in them and you’re struck with we’re not just in China, we’ve been in China for 100 years.

We know everyone in China, the relationships are very deep and that’s true in India, and every corner of the world. Really the question we asked ourselves is how can we get the clarity to the organization and still manage on a full global basis? In listening to our clients they told us that certain products need to be global because that’s how they wanted to be served. We took four of these and we decided for Global Wealth the Card business, the Securities and Banking and Transaction services we would render the decision rights crystal clear to these business leaders.

They own these businesses, they have the responsibility for making the formal decisions and they have the responsibility to for the P&L. That wasn’t enough. That wouldn’t leverage the idea that Manuel just talked about of how you get close to the client. We overlaid this with a regional structure and we took what you just heard here of transformation of what was done in Mexico and spread throughout Latin America and we are not going to do that on a global basis.

With strong regional leaders like Ajay Banga who is in the process of moving his family to Asia. He now has the decision rights as close to his client set as we could possibly get. He works in coordination with the product leaders that are there. At times there may be agreement and other times disagreement but we have put in place a decision process where there are very clear rules of the road.

By using those rules of the road we can get the very quick resolution. I don’t think there’s going to be much dispute. I actually think there’s a real sense from what we’ve seen already of a working partnership of picking up the phone and having very good conversations. We’re very pleased with how this is designed and more importantly how it’s actually working today.

The third and perhaps the most bold, Vikram mentioned how many people we have inside our organization from a function point of view. We collapsed the organization together and we recognized that there’s a great opportunity for efficiency and effectiveness as we run it as one organization. Almost half the organization is in the functions that have now been centralized. We talked about the number inside of 140,000 in ONT alone. We have 25,000 developers, that’s understandable, it’s a very large number, I believe it’s a large number but it’s understandable with how we’re organized.

Where we believe the efficiency is going to come is understanding how we can develop something in one part of the organization and make sure that that’s being replicated throughout. We believe there is tremendous savings there. Kevin Kissinger and his team of operations and technology took me through two solid days of business reviews. They said here is the benefit we get from centralization. When we added it all up it was $3 billion targeted savings over three years.

I can understand why, Vikram mentioned 16 different data bases. I know something about databases, I’m not an authority but I can name a few like DB2, Teradata or Oracle. Can anyone else name the other 13? That’s a lot of databases. Not only that one three of them were authorized under the old structure. Now with Kevin in control he can say these are not permitted, get rid of them and organize them.

If you look at Vikram’s charge on stage three he talked about getting to while maximizing Citi an information advantage. We can’t get there with the information compartmentalized but we can when we start to put it together. That’s not that hard to do any more. It would have been 10 years ago but that’s not that hard to do. Although it’s going to take a little bit of time to get that right.

In addition to what we’re doing on the integrated function I’m actually more excited about what you get when you start to integrate the clients facing Citi. The reason I’m so excited there is yes there are efficiencies we can get out. In fact, one of the mandates that’s been put out by Vikram is for each of the business heads to take a look at their businesses under the new construct and lay out the value that they are creating for the client and work backwards. Understand exactly who needs to be inside their organization by value and come back to us.

Already, Shirish Apte has come back and said he believes in Eastern Europe in one country where he’s finished the exercise that he can get a 15% to 20% improvement in efficiency. I believe the rest of the business heads are coming back to us before the end of the month. We’re excited by the early return. That’s not the reason I’m as excited about the integration of the client facing model it’s really getting to the other side of it. It’s getting to the side where we can actually go to market and serve our clients in a way none of our competitors can.

I know some of our competitors, I’ve worked there, they like to talk about we’re going to have a united front into the client base. The only way you can do that is when you’re organized to do that and that’s what this organization is designed around. We do have some digital problems still, I asked how many client relationship management system we had it turns out its 33, one better than the next.

The one in Asia is terrific but it works for only one business and it is constrained. I can see how we get to 33, we need to change that so we have a common system so we can have a common dialogue with our clients and that’s achievable.

The other exciting part about the client interface being brought together is we’re going to see real revenue opportunities in front. Sallie just yesterday told me that in Eastern Europe we just won a mandate, an investment banking client who just put in our care $2.2 billion and that we believe there’s going to be many more dividends along these lines. Michael Klein as Vikram has talked about has been charged with taking that from a concept and bringing it to reality and we’re taking one of the most important leaders and saying make this work. It’s a very difficult job and I’m sure its going to be effective.

The third part of the client integrated model that I like is innovation. As you get close to the client you’re now able to really listen to the needs, maybe more importantly the unmet needs and that’s what we plan to do. Citi has a heritage of innovation and we need to restore that. You heard from Steve the type of innovation that he’s talking about within the Card business. Steven Bird and I when we were in Korea went to SK telecom to the opening of that joint venture and its absolutely fascinating because you realize in Korea a phone half the size of this is really how people pay.

Korea being the most online country in the world we’re putting our innovation in the leadership country and then being able to harness that across the board. To help us in the innovation we just hired as a senior advisor to us Irving Wladawsky-Berger. I have to admit we couldn’t get him full time because he’s still working advising IBM and Google in their computing and two other days a week he’s teaching innovation at MIT. He is giving us three days, actually one of them is Sunday and he doesn’t miss a Sunday and we are excited by how he’s organizing us.

In fact, today he’s down in Mexico visiting Banamex and he was sending me notes as late as last night as you have to get down here and see what they’re doing. That’s the way we’re approaching innovation here.

I’ve talked about most of the topics of the early observations but I haven’t addressed culture. It may be the most important of all of the topics that we have. If you step back and look at, and you understand the Citi culture as we’ve been trying to you have to realize that something needs to change. What we’ve done here with this new organization is we’ve been very explicit. We’ve been explicit about decision rights and accountability.

With accountability we can really measure both the performance of a group and an individual. With that measurement we can build a culture of meritocracy which is the cornerstone of the new Citi culture. Meritocracy alone won’t get us there we need more than that. We need a shift in behavior and we’re beginning to do that. I can feel it already. One of the things Vikram has announced to the Executive Committee is he is realigned our compensation so that we collectively are going to be judged on the value we bring to you as our shareholders.

In addition to that he has told us that he is going to evaluate individually each one of us on our partnership like behavior of what we’re doing to drive Citi together. Last night Vikram hosted a senior leadership dinner. It was the first time he pulled this group together. No one knew who they were in terms of who was in part of this leadership team until they came together. We talked about what we need to change and he gave us our mandate of what we need to do for the transformation.

He then broke the group up into five different tables and asked them to talk about risk, talk about capital, talk about clients and talk about innovation and growth then get up at the end of the dinner and talk about what they believe the right action plan was. Two a table the person who got up said what we need to do is change our culture. Two a table. The risk table got up and said what we need to do to change risk is to become personally owning the risk culture.

I was most encouraged with the dinner. You can actually see the organization go from theoretical to execution and I think it’s a great start.

Vikram Pandit

The only thing I would add is we may have 33 client management systems around the world but not in Mexico. We talked to you about legacy assets, we’ve talked to you about core Citi, what core Citi means, we’ve talked to you about our five platforms, we’ve talked to you about what we’re doing to execute against the strategy.

When I started as CEO I said together with Gary we’ve got three important priorities, capital, costs and risks. You saw that in our stage one of getting fit so let’s talk about risk and before I bring up Brian Leach who is our new Chief Risk Officer let me briefly tell you how we’re thinking about risk. The first point I would like to make is we must protect the franchise. We create tremendous value in our core businesses that we’ve talked about. We must avoid negative outcomes that destroy value.

Obviously what that means is we need to manage the size of negative outcomes. Diversification in itself is necessary but not sufficient to manage risk. The second point is that for every one in our business not only hear but around the world recent events require to philosophically rethink our approach to risk and capital. The markets are shifting from just in time liquidity, just in time capital environment; in addition we and our competitors may not be able to count on distribution of risk, securitization of risk as risk mitigants which changes the game in many ways.

The future model may require need for balance sheet and capital beyond what it’s been in the past which of course makes our model extremely valuable. It’s up to us to figure out how we manage that optimally. We also think about risk as an opportunity. Don talked about data; I talked about harness our information. We do, we have tremendous amount of data and intelligence in this organization and a lot of natural client flow business all of which creates an opportunity for us to harness and take intelligence risks.

We’re going to leverage capacity to the full and think about risk not only from the perspective of managing our franchise but also allowing us the opportunity to capitalize on our franchise. With that let me turn it over to Brian Leach.

Brian Leach

I’m Brian Leach and I was appointed as Citi’s Chief Risk Officer in February of this year. It’s a pleasure to be here today. As Vikram noted it’s been an unprecedented three quarters for Citi and the Financial Services industry as a whole. I know that you’re anxious to hear about the changes we’re making to the management of risk at Citi and I’m anxious to share these with you.

I am taking these steps with the support of Vikram, Gary, the entire senior management team and the Board of Citi we all share the same goal to strengthen and enhance the management of risk thereby creating a competitive advantage for Citi and ensuring long term value for our shareholders.

The first step I’ll describe to you is how I am changing the risk management function, creating new roles and bringing new talent to complement the existing team. I believe that with an organization the size and complexity of Citi we need to approach risk management from three dimensions. We have risk managers aligned against each business, against each region and against the critical products at Citi.

I’d like to spend some time describing my expectations for the roles shown here. I’m holding every member of each of these groups ultimately accountable for the management of risk in Citi. However, each group has a separate but complementary role to play in the process.

Starting at the top of the slide each of the businesses ICG, Consumer and Global Wealth Management have a Business Chief Risk Officer. These businesses have unique complex challenges; the Business Chief Risk Officer understands these risks. These individuals will be the focal point for risk decisions for example limit setting and transaction approvals and will manage the majority of our experienced risk management professionals already in place.

For the ICG Chief Risk Officer role Richard Evans is joining on June 1^st. I’m certain many of you are familiar with Richard given his two decades of experience in risk management most recently as the Deputy Chief Risk Officer of Deutsche Bank. I look forward to him joining our team.

Going to the right hand side of the slide the Regional Chief Risk Officers are in direct response to Vikram’s new regional business model aligning Citi’s resources more closely with our clients. The Regional Chief Risk Officers are accountable for the risks in their region and will be the primary contact for the regional business heads. They will also engage with the regional regulators to ensure that our governance structure has the highest level of integrity.

On the left side of the slide I’ve created the role of Senior Product Specialist. Product Specialists have demonstrated market expertise in management experience in areas of critical importance to the organization. They have accountability for the risks within their specialty. They will focus on problem areas looking across geographies and business lines. Most importantly they will review the underlying business model to ensure the sound use of capital based on the risks incurred.

The Product Specialists are a resource to me as I focus on areas of greatest concern and of equal importance are a resource to the Business and Regional Risk Officers giving them greater ability to focus on the day to day management and responsiveness business flow.

Finally there is the Business Management Team. The common foundation shown across the bottom of the page. It keeps the risk organization functioning effectively with the right infrastructure processes and management reporting. This also includes managing our very critical regulatory relationships. The enhancement of Citi’s risk capital model and the integration of the model into the decision making process is among my top priorities.

We need to ensure that our risk capital model is intellectually consistent across all activities regardless of the accounting treatment, the booking vehicle or the business line. We also must be aware of off balance sheet risks and liquidity risks and ensure that these are sufficiently captured. We also need to measure the fat tail risk appropriately.

Risk architecture is needed to ensure integrated systems with common metrics facilitating the aggregation and stress testing of exposures across the institution. In my opinion this is a necessary condition for the achievement of our goal of best in class risk management. Infrastructure risk is what I look to in order to improve our processes across businesses and geographies. It will be closely aligned with our operational risk managers to ensure that best practices are identified and shared.

I will rely on these experts to help me manage what is arguably Citi’s greatest asset. But also the biggest challenge, the sheer vastness of the franchise.

My goal today is to describe to you the steps we are taking to strengthen and enhance management of risk at Citi. I have described the changes we have made in the risk function itself to build talent and ensure accountability. Of equal importance are the steps being taken in conjunction with my partners in business and finance to reduce risk in areas of greatest concern to enhance the risk management framework itself and to affect the necessary changes in the risk taking culture at Citi.

We actively managing areas of greatest concern to us. These are referred to as our focus positions. You won’t be surprised by any of the items on my list. It includes super senior CDO positions, residential real estate and highly leveraged financing as well as others. This is not simply an aggregation exercise although identifying and dimensioning all of the pieces is a critical element of the process.

We are in active dialogue within risk and across the businesses to analyze the underlying exposures and weigh alternative courses of action. Let me take just a few minutes to talk to some of these positions. We have $23 billion of ABS CDO super senior exposure which is in marked assuming a 20% peak to trough decline in housing prices. Two billion of this exposure is backed by riskier mezzanine portfolio which during the first quarter was partially hedged by using credit default swap.

Sixteen point eight billion is composed of ABCP super senior exposure whose underlying over vintage securities benefit from substantial credit support and as of today have experienced minimal credit losses. This ABCP exposure is generating approximately a 500 basis point credit adjusted net return. We have a residential first and second mortgage portfolio in our US Consumer Business of approximately $220 billion. Gary spoke about this in some detail on the first quarter earnings call as well.

From a risk standpoint, we have made significant changes in our origination strategy and standards, including stopping third-party originations in second mortgages and significantly tightening our underwriting standards across first and second mortgages, for example, lowering maximum loan to value ratios.

These changes are improving the quality of new business we are booking. We are also proactively managing those portions of portfolio that we are most concerned with and we continue to augment our collections and resources and programs to work with our customers.

We are also very closely managing our other consumer portfolios such as cards and autos by implementing a series of policy and actions an ensuring that we have the right collections effort against it.

Finally, we have $28 billion in highly leveraged financing underwriting exposure after taking into account the substantial sale we just completed in April. That sale, as well as the hedging of a portion of our super senior exposure, are specific examples of the type of analysis and action we are undertaking with respect to our focused positions.

In addition I want to assure you that Citi takes the lessons learned from recent events and makes critical enhancements to its risk management framework and to its business framework to ensure that we are integrating risks systematically into our decision making process.

This includes the following steps: we are conducting a comprehensive systemic stress testing of the entire balance sheet. This includes mark to market and accrual positions and produces output based on both historical, such as the fall 2007 subprime crisis and hypothetical scenarios such as stagflation.

We have begun to rationalize the limit structure, particularly in markets and banking. This includes reducing limit sizes in some cases, simplifying the limit structure in other cases and formalizing stress limits across all the products. As I mentioned earlier, I believe that enhancement to Citi’s risk capital model are needed in order to create a risk base against which reward decisions can be consistently evaluated.

The stress testing I just mentioned is critical to ensuring that that is happening. Once we have the risk capital base, we need to look at returns on our risk capital on a transaction level as well as an aggregate portfolio level. We need to ensure that we are being compensated for individual transactions appropriately and that our portfolio of businesses is generating appropriate returns to our shareholders.

Those risk reward assessments lead me to my last and arguably most critical point and likely the point that many of you have questions about. A change in the culture is required at Citi in order to fully achieve the goals that Vikram has set out for me, for himself and for the organization.

I see two critical aspects of that cultural change. First, we need to harness the incredible global information set that is unique to Citi to help us make better risk decisions. That information set is a competitive advantage, one that we need to do more with. It requires working across the traditional business silos, not just with systems but with analytical resources and dialogue.

Vikram’s regional business model will facilitate that change. Second, business, finance and risk working in concert need to more rigorously assess risk return tradeoffs and incorporate such analysis into the business decision process in a disciplined manner. Doing each of these things requires a mindset change on the part of risk management and on the part of business management.

I support that mindset change. I view the evaluation of risk reward tradeoff as part of my job and I fully expect my risk management team to look across the business, region and products areas to achieve optimal results for Citi. I know that we have Vikram’s full support on this change as well.

I’m confident with the willingness of our entire senior management team to lead by example, we will be successful in fostering a risk taking culture that creates a competitive advantage for Citi and long term value for our shareholders.

With that final point I’ll pass it back to Vikram and I look forward to answering your questions during the Q&A session later today. Thank you.

Vikram Pandit

Brian thank you very much. I want to introduce Gary. Gary is going to talk about three things: one, with his reengineering hate he’s going to talk about the reengineering state. He’s going to talk about the legacy assets again, we wanted you to understand what we’re doing with them. And lastly he’s going to talk about our financial model. Gary.

Gary Crittenden

Thanks very much Vikram, it is nice to be with you all, we certainly appreciate you taking the time to be here this morning and I hope this is a useful review for you. As Vikram said, my primary job today is to ensure that you walk away with a very good understanding of what the earnings power of this franchise is and so I’m going to go through business line by business line and give you that perspective and then he’ll sum it up for the total company as a whole when we come to the end.

But I thought it might be worthwhile to spend just a minute talking about the history and to take the time period from 2001 to 2006 as kind of a period that was instructive and helps us learn what we need to change about the company going forward from a financial standpoint.

I would imagine that you would be surprised to think that from the time period from 2001 to 2006 that our compounded annual growth rate in earnings was actually above 13%. Obviously it was a little volatile during that time period but on average our compounded growth rate in earnings was above 13%.

Our return on equity as a company averaged just over 19% all during this entire time period. And yet, interestingly enough, if you look at the way our share price performed during that time, it was absolutely flat. We had a period when it dropped, we had a period when it increased but if you went over the entire five year time period, there was essentially no shareholder value created by that growth in earnings.

And I think the real question is, why did that happen and what can we do going forward to ensure that the next five years are not a repeat of the five years that existed between 2001 and 2006. And there’s a couple of different charts on productivity that I’d like to show that relate to this. There’s actually a very simple and straightforward answer to that question.

The answer is that to achieve the additional revenue, we spent increasingly more in terms of expense and we dedicated more in terms of assets so that there was no shareholder value created. If you look at the chart that’s on the right hand side of the board here, if you look at the first time period from 2001 to 2003, and you look at our efficiency ratio, remember on an efficiency ratio, low is good, high is bad.

On an efficiency ratio basis, during that first three year time period, our efficiency ratio averaged 54%. If you take the last three year time period it went up by 4 full percentage points, it averaged 58%. If you look at our use of assets, so what was the revenue return to assets during that time period, it dropped by 23% over that five years.

And because of this additional consumption of expenses, the additional consumption of assets, we did not create economic value and as a result our share price didn’t improve. And what I’d like to talk a little bit about is what about this is going to change going forward, and I’m going to use a very simple model to do this.

Now as I do this, I say this with a couple of cautions. I’m going to give some very precise numbers. The numbers I’m about to use are not precise, by very definition I’m talking about what’s going to happen over the next two to three years and certainly the environment we’re currently in is characterized by a lot of uncertainty. So think of these as targets that we’re thinking about internally for the individual business lines in which we compete.

The second thing is, I’m going to talk about GAAP assets and all of you who follow us closely know that we do not allocate GAAP assets down to product lines, we allocate risk capital down to product line. But I thought that you could more easily triangulate back to GAAP capital, so we would use GAAP capital.

So we have used risk capital, we’ve used regulatory capital and total invested capital to triangulate on the way we’ve allocated GAAP capital to each of these individual product lines. So just keep that in mind as I go through the material that I’m going to cover today.

Now I’m going to focus on our earnings power and I’m going to explicitly talk about that in terms of the return on equity of the company and our individual business lines. To make it simple, I thought I would dissect it into the buckets that you see here on the chart. So obviously return on equity is the product of margin times asset productivity times leverage.

And for our purposes today, I’m not going to talk about leverage, I’m going to ask you to assume that we’re going to be thoughtful about that and we’re going to manage our leverage in a wise and conscientious way.

So I’m going to focus on the first two of these which I think will probably be the ones of most interest to you, starting with net income divided by revenues and our revenue productivity. And I’m going to specifically go through each of the business lines first in the same order that Vikram has reviewed these business lines to put financial parameters around the specific strategies that he described in his presentation.

So let me start with global wealth management as the first example. The top part of this charge on the left hand side is efficiency ratio in this business in the time period from 2005 to 2007. I show you our efficiency ratio and for obvious reasons I’ve averaged the rest of our competitors.

On the bottom part of the chart I have our asset productivity during the same time period. I show our asset productivity, I’ve averaged that of our competitors and each of the charts that you’ll see have essentially the same information in them.

If you look at this business and you focused on both the efficiency ratio and asset productivity, you can see that we’re better actually than our competitive set in both of these measures. From an efficiency ratio perspective, that’s driven by the fact that particularly in the brokerage business in the United States, when you take the average we have a slightly better cost structure than the average of that competitive set.

Over time, we believe there’s an opportunity for us to improve that efficiency ratio over the next two to three years to something like a target of 75%. Now just a couple of factors that underlie that: one is we’re making a significant technology investment in that business and secondly as Sallie announced about six weeks ago, we are unifying the support platforms in the company behind the various product lines that we have, behind our private banking business, behind our Smith Barney business.

By taking those steps, in aggregate, we target to save something like $100 million in support costs across those two platforms. Those two actions taken together in large measure contribute to the accomplishment of a better efficiency ratio going forward.

We have one other advantage and that is we operate outside the United States and we have terrific returns associated with that business. As that business grows faster than our business outside the US, that mix change over time also contributes to the improvement in returns that you see at the bottom of the page. And these are the kind of targets that we have for the business over the next two to three years.

Let me now move from this business and I’ll talk a little about the card business and I’m going to ask you to focus on the column that is right in the center of the chart here which is the Citi average. We often talk to people about this and they say that our cost position in the card business is high relative to our domestic competitors.

As you can see, if you compare against our largest competitors in the US, that average, that would be a correct conclusion. However, it is really somewhat obscured by the fact that we operate internationally and we operate domestically and we have different cost positions in those two markets.

If you look on the far left hand side, you can see that in the US our efficiency ratio is 36%, higher than our competitors. When Steve spoke, he spoke about integrating the silos that exist within the US card business today, we have a bankcard business, we have a private label business and we have an opportunity to integrate those silos in a way that should generate substantial benefits for us as a company.

That in combination with gaining scale as a result of the globalization of the card business we believe will allow us to have a targeted improvement in our efficiency ratio to something like 33% if you go out two to three years from today. Now that’s the blended efficiency ratio of the international card business and the US card business run as a global card company just as Vikram and Steve described it.

We believe at the same time that will result in a modest improvement in our return to assets, so our asset productivity will improve. The reason it’s not improving more is that those markets become increasingly competitive over time. But as our business continues to shift internationally in spite of the increased competitive nature of those markets, we anticipate that we’ll see improvements in our average revenue as a percentage of our assets as we’ve shown here on this chart as our target.

Let me turn now to consumer banking. Again you can’t think about consumer banking as one entity across the world. Vikram talked about the fact that we’re organizing this business on a regional basis. So you really have to split it into its component parts. And let me talk about the US.

Again if you just look at the superficial analysis and took the entire consumer bank segment and you took our efficiency ratio and compared it to our competitors, we would look like world beaters. My guess is that’s not the impression that you have. We would look like world beaters.

The reason why that is, is that over time we have grown a very significant mortgage business with enormous revenues and those revenues taken against our cost base give us a relatively low efficiency ratio. However, those same revenues have caused us to have a penalty in asset productivity. You can see that our asset productivity when compared to our competitors lagged.

As we talked about both in the press over the last couple of months and then more today, we intend to wind down a significant portion of the legacy assets that are in our mortgage portfolio. As we wind those assets down, two things will happen. One is our efficiency ratio will actually deteriorate, not a bad thing because our returns are going to go up more than commensurately because of the reduction in mortgage assets as a percentage of our total.

But just to give you an idea of the magnitude of the opportunity, if you looked at our retail bank alone as a single entity, our retail bank alone has an efficiency ratio of 79%. And you’ve heard Steve and others talk about consolidating our expansion efforts into markets around the US where we have a leading or a near leading market position.

As we accomplish that, we think we can significantly improve our cost position and all of that is baked into the improvement in the target. We will grow outside the United States more rapidly than in. We added 300 branches last year outside the United States in the retail banking business, my guess is that pace is going to continue very strongly outside the US.

And because of the more rapid growth rate outside the US, we expect also our returns to go up overall. So our asset productivity should improve both as a result of shrinking our commitment to the mortgage business in terms of the total amount of investment that we had there but also because of the continued shift to our position internationally to strong markets outside the US.

Let me now move from talking about the three consumer businesses that Vikram talked about and I’m going to talk about our two institutional businesses, securities and banking. Again, if you focused only on the raw numbers, on the efficiency ratio of the securities and banking business, again the conclusion you would walk away with is that we have the lowest costs if you compare us to our competitors on average over the course of the last couple of years, we do have a lower efficiency ratio.

However, the same phenomenon that existed in the retail mortgage business is also present in this business. That is to say we grew a very large fixed income as we had very large positions as Brian described which over time generated revenues, generated a significant amount of revenues but consumed a disproportionate amount of assets.

The net result of that was we had the appearance of a low efficiency ratio but as you can see compared to our competitors, we had a relatively low asset productivity. Our intention is to reduce the exposure that we had in the fixed income business while we over tie diversify our portfolio in the business lines where we’ve had success growing those businesses more rapidly over the last few years: our equity business, our prime brokerage business and the potential expansion further in the commodity businesses.

The net result of that will be very similar to the ratio change that you saw in the consumer banking business. Our efficiency ratio will actually deteriorate. We expect a target something like two to three years out of something like 55%. But importantly, our asset productivity will improve. Now if you look carefully at this chart, you might say that looks like a very, very small improvement for all of that effort.

But it turns out because the asset base is so large here that relatively small improvements are very significant. So if we went back to the first quarter of 2001, just to put it in perspective and we actually achieved the efficiency ratio that we’re targeting here two to three years out, we could have done $6 billion more in revenue on exactly the same asset base.

This is a material change in the way we’re thinking about managing the assets in the securities and banking business and we hope this will have obviously a very positive impact on our capital ratios.

This will be the last detailed slide I’ll go through and talk a little bit about transaction services and I’m going to start this time on the far right hand side, this business obviously consists both of our securities business and our cash business, but both businesses have very common kinds of characteristics.

This would show that we’re at a significant disadvantage relative to our target or that we’ve got a long way to go relative to our target. I should point out that there’s been very significant progress made in this business over the last three years, so even though this is the average, we actually finished last year at 58%.

That’s because of the growth that has happened in the business and the investment that we’ve made to improve our technology. And those commitments to technology and growth remain unabated as we continue to focus on this business going forward.

You can see down below again because of our strong international presence, generally we’ve had outperformance relative to our competitors, particularly on the cash side of the business. But we’re going to make a very important change, and that is we have 5,000 clients around the world that are large, very successful multi-national companies, the kind that Vikram, when he used the Shell example a little bit earlier, that use our services very broadly.

Those are the kinds of clients that we as a company should serve, they fit right in the heart and soul of what we’re best at and those 5,000 clients have tentacles in their supply network that we also need to serve. That’s the kind of heart of what we should do from a business perspective.

There are also in addition to that, tens of thousands of small companies that are frankly not best served by Citi direct where we can white label our products and services to be served in those markets at a much lower cost. That shift in our focus by customer should allow us to increase our total penetration of the market, maintain the network that we need for our large clients, but improve both our cost position and the asset productivity that we have over all as an organization.

And that’s what’s reflected in the targets that you see on these charts. So that was kind of a little bit of a view of the stepping through each one of the individual businesses. What I’d like to do now is come back up out of the businesses and come up to the total company level and step you through the elements of this little model in a way that gives you a bit of a perspective that covers the entire organization.

So again, we’re heading towards the path that’s going to take us to return on equity. I’m going to focus first on net income margin and then secondly I’m going to talk about revenue productivity. Now net income margin obviously consists of a couple of major factors, one is the cost of credit and the second is efficiency rate.

Now in terms of the cost of credit, obviously this is something very, very difficult to predict. I’m going to give you some average numbers here in just a minute. But one thing I will say is that the next few quarters are unlikely to be characterized by averages.

I said in the third quarter earnings conference call that there’s obvious deterioration continuing to take place both in the credit card business and in the residential mortgage business and we expect increases in credit cost as we go through the next several quarters.

But if you take the average over a cycle, this chart represents the cost of credit that we’ve actually experienced divided through by our average loans in each of our individual product lines on average in the period of 2003 to 2007.

We think that’s probably a reasonable time period to use as a basis, we had the release of some reserves because of the benign credit environment that existed in 2006, we had an increase in reserves that existed during the course of 2007 and because of that change in the environment, we think this is a relatively good representation of what the cost of credit might be over time.

I should point out, however, that the 2.5% again is a bit of a misleading average. Typically, when credit is deteriorating, net interest margin is improving because the economy is weakening and there are offsetting elements in the income statement that you have to consider when you’re modeling.

Conversely, when credit is improving, generally interest rates are increase and there’s offsetting effects that go the other way. So as you think about this 2.5%, it’s probably not right to think about it being applied kind of blindly without a little bit more intuition about what’s happening to interest rates at the same time for the company going forward.

But this, for our purposes, is what we have assumed on average given that was representative of the time period over the course of the last four years. Now, the thing that is probably most in our control and the thing that we’re focusing most of our attention on is what our efficiency rate is going to be going forward. And I’ve gone through specific targets for each of the individual business lines and I mentioned in a couple of cases what we think the primary factor is that drives that.

But very importantly here, we intend to make significant progress on reengineering. Let me talk just a little bit about some of the specific parameters that Vikram talked about just a minute ago. So we think about ourselves today as having something like a 62% efficiency ratio. That adjusts for the fact that we had marks that we took in the first quarter, we tried to take what was I think a $16.2 billion expense base and annualize it.

If you take that $16 billion expense base and annualize it, we have something like $64-$65 billion worth of total expenses, that would give us on a more or less normalized basis something like a 62% efficiency ratio as kind of a benchmark of where the company stands today if the environment weren’t quite as volatile as it is.

Now Vikram talked very specifically about the fact that we’re targeting over the next three years, including this year, so 2008, 2009 and 2010, a total reengineering benefit for the company of $15 billion, most of that $15 billion will come as a direct reduction of expenses.

You’ve heard lots of examples of how that will come over time. It’s important also to realize that when we think about reengineering as a team, we think about the entire income statement. We think about opportunities for revenue reengineering, that is permanent changes in increasing the value capture that we get from revenue.

We think about it in terms of cost reduction, we talked about some examples of that. We think about it in terms of credit improvement, reducing fraud, reducing credit for every dollar of billings that we had and we think about it in terms of improving our tax effectiveness. There’s four kind of major buckets to shoot against. We expect, however, the majority of what we do will come out of our cost base over time.

And so we’ve expressed this as an efficiency ratio relating to that cost basis. Now we’re targeting, if you take the blend of everything that I just showed you on the next page and you take the growth rates for these businesses which I’m going to go through in just a minute, we’re targeting an efficiency ratio two to three years out of something like 58%.

Now if you think about that 58%, you could think about it in a couple of different ways. One of the things we could do is we could take the $15 billion out and not make any reinvestment back into the business. That’s certainly a choice that we could make over time.

Another possibility would be the business would grow in line with what I’m talking about here and we would make investments back in the business. If you make some assumptions about the growth in the business, the target of 58%, you could conclude that we could invest something like $20 billion back in the business and given our expectations for growth, still have our efficiency ratio improve from 62% down to 58%.

But there’s many other combinations of scenarios that you could think of. Our reengineering actually might be higher than the numbers that I’m talking about here. We may choose to reinvest more or less than the number that I just talked about. It depends highly on what our revenue growth rate actually turns out to be which is a function of both our competitive success and what happens in the environment.

So there’s a number of ways that you would have to think about these numbers, but if you think about what we’re targeting to try and achieve, this is what we’re targeting to try and achieve given the assumptions that I’ll talk about here for revenue growth rate in just a minute.

So let me just give you a couple examples of the things that we’re currently working on that I think will give you a flavor of the kind of opportunities we have ahead of us. Don talked a little bit about bringing together the functional areas of the company. If you take finance as an example, we’ve operated finance just the way Don described it, that is each individual business had its own finance infrastructure.

We have the opportunity to bring that financial infrastructure together and operate it in large financial centers around the world. We’ve opened three of those centers, one in Tampa, one in Costa Rica and one in Manila. By just bringing those people into those centers, we’ve been able this year to eliminate 5% of the 8,800 people that work in finance.

We also have moved 15% of the total jobs in the organization into those centers. This year, before severance costs, we’ll achieve a $65 million benefit associated with doing that and we have strong expectations of being able to increase that savings as we go through the next two to three years.

Another example, you know we’ve been working on data center consolidation. Last year we had 52 data centers. This year we’ll finish the year with 32 data centers. Next year we’ll finish the year with 14 data centers, reflecting the fact that Kevin has had the capability and the control to drive the consolidation of those data centers over time.

I mentioned revenue and it’s interesting, revenue reengineering actually turns out to be improvements in cost efficiency and let me give you one example to explain how. We did a test earlier this year of changing the incentives that we have in our consumer finance business. We used to offer in each one of our locations a total incentive that would be paid to the entire team based on the growth in loans in that particular center.

We decided to test this scenario where instead of paying the total center based on total loan growth, to pay based on individual loan growth so that you would get an individual incentive rather than an incentive for the total store. We tested this, we tested it against kind of normalized samples, finished that analysis and concluded that we should roll it out.

We’ve now rolled it out over the course of the last nine months. We’ve had an incremental $1.4 billion in loans that have been generated, $100 million increase in revenues and when you take that $100 million increase in revenues and factor into the efficiency ratio, now as the denominator, we’ve had a 94 basis point improvement in our efficiency as a result of this aspect of revenue reengineering.

So the primary source of our savings here is going to be cost driven but we intent to attack the entire balance sheet and through that effort generate something like $15 billion worth of total benefit from a reengineering perspective over the next few years, some portion of which may be invested back in based on the growth rate that we see in the business and the opportunities that we see going forward.

Now I think it would be right for you to ask the question, what’s going to be different about your success in reengineering this time? And let me just mention a few factors that I do think are different. One is we have a centralized reengineering team with competent people who have skills and capabilities in this area to work with and advise the businesses.

Secondly, our senior executives will now have this as a significant portion of their compensation. It’s going to be our wallets and our hearts are going to be in the same place on this topic. Third, we’re doing this over a longer timeframe. We’re not trying to get this done as a one quarter wonder. We’re trying to make this happen over a longer time period and with a longer time period, you can take on projects that have a longer time period associated with them.

Now it’s important to say that against this $15 billion, I have not calculated what the severance implications are. I don’t know today exactly what the severance implications are and there will be some, we’ve had severance last year, we had severance in this quarter, there certainly will be some.

My guess is there will be roughly a commensurate reduction in headcount associated with this activity over time. Although, the headcount reductions may come more quickly than the cost reductions because we have opportunities for divestitures, we have opportunities for outsourcing activities and then we have the normal productivity enhancements.

So you’ll see those first potentially evolve at a somewhat different rate. But I think you’ll see that with the changes in approach here and focus that we have an opportunity to reduce these costs.

The final element that makes it different is we have regional CEOs. They now have the responsibility over their local infrastructure. And as Manuel described, that gives us an opportunity to bring those infrastructures together in a way that simply was very difficult for us to achieve before. So all of that taken together we hope will give us an improvement that is akin to the target that I showed you.

Let me now move from talking about net interest margin and talk about aggregate company asset productivity. Now obviously this is a function of a couple of things, how fast is our revenue going to grow and what’s going to happen to our assets during this same time period.

And let me start by talki