Citi CMB Advanced Risk Issues Summary and Observations Tarrytown, NY October, 2007

1. Citi CMBAdvanced Risk IssuesSummary and ObservationsTarrytown, NYOctober, 2007

2. Citi CMBAdvanced Risk Issues Risk Management and Revenue Growthin a Complex Global Bank

3. Citi CMBAdvanced Risk Issues Why Were We Here? • What are the risk issues that are of prime concern to Citi today? • How does Citi manage risk today? • How do risk management and business management work together to drive shareholder value? • To help remind you what you already know about risk management and analysis! • And, to remind you that great bankers are skeptical by nature, and curious learners, always

4. Moody’s 2005 Securities Industry Outlook • “For all global trading and market-making firms, highly-skilled risk management - broadly defined - is an absolute necessity for the business model. • “A robust corporate culture remains critical for balancing short-term competitive pressures and the long-term interests of a franchise. • In a hotly competitive arena, fraught with litigation and regulatory risk, an investment bank needs a collective sense of right and wrong.

6. Moody's Investors Service upgrades the ratings of Citibank N.A. to Aaa for long-term deposits and to A for financial strength September 26, 2006 • The firm has made progress on strengthening culture and improving controls, and has not suffered a major control problem since having to close its Japanese private bank. • However , management must continue to solidify cultural change, notwithstanding shareholder pressure for earnings growth • Moody's assessed the effectiveness of risk controls, measurement and information infrastructure as well as the firm's risk governance and culture.

7. Strong earnings generation from an extraordinarily diverse set of businesses allows Citigroup Inc. (Citi; AA/Stable/A-1+) to cover some of the high risks that it incurs. Citi has also achieved a substantial change in its control environment in the aftermath of a wave of heavy litigation expenses and criticism of its business practices from regulators around the world. “Credit Matters Today” March 5, 2007

8. Survey of International Banking – May, 2006 • Banks the world over are scrambling to become larger… • But at some point diseconomies of scale will also start creeping in, with management finding it harder to summarize everything that is going on in the bank • This includes the neglect of concealed risks and the failure of internal controls • This problem afflicted Citigroup in 2002 – 2005 when it was rocked by a string of compliance problems • Risk management is the rock on which any contemporary bank rests….

9. The alchemists of finance – May, 2007 Global investment banks are taking ever more risk, and are devising ever more sophisticated ways of spreading it

10. Credit Risk Supervision – Sabeth SiddiqueMay, 2007 • It is “unsafe and unsound” to be in credit risk trading without an understanding of the risks being traded • Banks should not be trading credit risk on “technical factors” • There is a large, new risk – “Pipeline” Risk. The risk that a market event will dry up liquidity in the middle of a syndication or creation of credit default protection

11. A New World Disorder for Debt Traders System of Risk DispersalProves to Be a Bit Erratic WSJ August 10, 2007; Page C1 • Welcome to the new world of finance. • Markets have taken on an increasingly important role since the financial crises of the 1980s and '90s. • But the downsides to this system could be serious. A financial architecture that dispersed risk also helped to create it. • And when troubles emerge -- as they have in the U.S. housing market -- they can show up just about any place in the world and in ways nobody predicted.

12. Banks in trouble The game is up Aug 16th 2007

13. Good Risk Management is a Driver of Revenue Growth

14. Reputation Risk – who are our clients? Choose them carefully Liquidity for clients Price of risk – backstops are not priced to be drawn Global and local macro-economic environment Emerging market risk Asset valuations Regulatory risk – client and environmental Pipeline risk and distribution risk Advanced Risk IssuesMonday Oct 1 – Participants’ Risk Concerns • Modeling structured derivatives • Operations – booking systems • Counter-party risk • Citi capital constraints • Competition • Client relationships • Loan reserve policies and practices • Downward spiral of corporate cash flows • Reputation risk relative to stalled underwritings

15. Advanced Risk IssuesCourse Overview • Basic Credit Risk Analysis • Industry Structure and Company Risk Analysis • Balancing Business Risk and Financial Risk (Key Success Factor Exercise) • Identifying Winners and Losers. • Framework for a common sense approach to make independent relative risk ratings • Early Warning Signs / Problem Recognition • Financial Fraud Detection – (True Save case)

16. Advanced Risk IssuesCourse Overview • Assessing management ability, business strategy, and controls • Management Competence and Business Strategy (Corning Case) • Business Controls and Strategy (Citibank Dublin Case)

17. Advanced Risk IssuesCourse Overview • Deal Structure and Risk • - Poland A2 Motorway Case • Converging Risk Issues – Credit Risk, Market Risk, Country Risk, Derivatives Risk • How Does Citi manage risk? • Underwriting risk and conflict management • Market risk / Convergence Risk • Global portfolio management • Operational risk • Country risk • IRM

18. ARI Presentations – “Seeing Around Corners” • CMB Risk Management – Pat Ryan • Global Portfolio Management – Bill Hartmann • Conflict Management / Franchise Risk – Rashmini Yogaratnam • Market Risk / Convergence Risk – Murray Barnes • Operational Risk – Jaidev Iyer • Problem Recognition / Early Warning Signs - Tony Murphy • Financial Fraud – Joe Forte • Country Risk - Doug Smee • Derivatives Risk – Patrick Pancoast

19. Advanced Risk IssuesQuotes of the Week • You get the systems you deserve • Jaidev Iyer • We want to be the BEST company • Pay Ryan • It’s tough to be diligent when you’re looking at huge revenue streams • Joe Forte • Don’t mix high operating/business risk with high financial risk • Arnie Ziegel • Do not try to rationalize away increasing danger signals, instead try to find out why • Doug Smee • We always rationalized why it was OK to exceed obligor limits • Bill Hartmann • Risk Partners and business partners have to be cognizant of the minimum amount of capital necessary to stay with the client • Pay Ryan

20. Advanced Risk IssuesQuotes of the Week • The purpose of strong risk management is to grow the business • Patrick Pancoast • We wish we had even more dry powder right now • Pat Ryan • We’re using the balance sheet and capital for lower profit business • Bill Hartmann • The origination / distribution model has become a risk management model • Murray Barnes • The new par is “96” • Patrick Pancoast, Carl Cho • When market liquidity evaporates, you need a different skill set • Murray Barnes • Business managers can sometimes be the best risk managers • Patrick Pancoast

21. Advanced Risk IssuesQuotes of the Week • As liquidity evaporates, market risk ends up looking like credit risk • Murray Barnes • Good business is identified as bad business, and bad business is identified as good business • Patrick Pancoast • If you can’t mark to market, you mark to model. If you can’t mark to model, you mark to guess • Patrick Pancoast • Anything that is unsustainable ends. The longer it takes to end, the bigger the crash will be when it happens • Doug Smee • Leverage can hurt you a lot, but lack of liquidity can kill you • Pat Ryan

22. Advanced Risk IssuesQuotes of the Week • The banks get cash, the bonds get equity • Bill Hartmann • History tells us that we’re creating tomorrow’s problems today • Bill Hartmann • Good people behaving badly, bad people behaving badly • Jaidev Iyer • It’s your fault, you gave me the money • Arnie Ziegel • It was BBB, now it’s trading at 30. It’s your fault. You sold it to me • Pat Ryan • Companies go bankrupt because they 1) run out of cash, 2) fear that they’ll run out of cash, or 3) their suppliers of liquidity fear that they’ll run out of cash • Arnie Ziegel

23. Advanced Risk IssuesQuotes of the Week • As soon as you hear the word “Miracle”, sell. There are no miracles. • Doug Smee • We looked at our ability to distribute as our exit strategy • Murray Barnes • Don’t be lulled into a false sense of security when there’s a Brand name on the counter-party • Pat Ryan • The future reputation of your firms could well depend on how you respond to the conflicts I’ve mentioned as well as those I have not • Rashmini Yogaratnam • We end up doing too little too early, too much too late • Doug Smee

24. Advanced Risk IssuesQuotes of the Week • The known unknowns, the unknown unknowns • Murray Barnes • You have to protect yourself against the unknown • Bill Hartmann • Citi, we expect you to serve as an example. We hold you to a higher standard • Rashmini Yogaratnam • What can happen on one bad day out of 100, what can happen on the worst day? • Murray Barnes • We’re not sending your clients to the graveyard, we’re sending them to the recovery room • Tony Murphy • It goes from amusement, to bemusement, to something else • Jaidev Iyer

25. Advanced Risk Issues Quotes of the Week • Choose your clients carefully • Arnie Ziegel • In the long run, treating customers fairly has proven to be good business • Rashmini Yogaratnam • We have to get a fully diversified book of business, which is the hallmark of everything we do • Pat Ryan • We need you to be curious learners throughout your entire career • Pat Ryan • How Citi manages the impact of the next downturn will define us as an institution • Michael Corbat (ARI, June 2007)

26. Citi CMBAdvanced Risk Issues Why Were We Here? • What are the risk issues that are of prime concern to Citi today? • How does Citi manage risk today? • How do risk management and business management work together to drive shareholder value? • To help remind you what you already know about risk management and analysis! • And, to remind you that great bankers are skeptical by nature, and curious learners, always.

27. Why Were We Here? • Excellent risk management creates shareholder value and can be a major driver of high quality revenue growth • Taking risk is one thing, managing risk is another • An effective organization requires Business and Risk to work as one • Don’t assume that what we distribute, or plan to distribute, can’t come back • Citi must maintain a superb control culture and business culture

28. Excellent risk management for revenue growth requires: • “Seeing around corners”….. • finding risk where we didn’t know or think it existed • understanding the convergence of types of risks, and • identifying the opportunities associated with risk • Skepticism to properly balance risk with revenue • Identifying potential flaws of business strategies – internal and clients • Understanding the increasing complexity of products

29. Why Were We Here? • To recognize that risk, product, and coverage can generate the most shareholder value by working together • To review what risks Citi is taking or facing, and how Citi is managing risk • Growth demands MORE risk and MORE reward, and it’s up to you to get the balance right • We can grow and still “stick to the fundamentals” – credit analysis is at the heart of all risk analysis • To remind you that excellent bankers don’t hesitate to say “I’m sorry, but I just don’t understand….” • To recognize that Citi is held to a higher standard, not just because Citi is big, but because Citi is the leader……………

30. Advanced Risk Issues 2007 Seeing Around Corners Risk Management and Revenue Growth in a Complex Global Bank

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