Good morning, ladies and gentlemen, and welcome to Citi's First Quarter 2007 Earnings Review, featuring Citi Chairman and CEO, Chuck Prince and CFO, Gary Crittenden. Today's call will be hosted by Art Tildesley, Director, Investor Relations. We ask that you hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. Mr. Tildesley, you may begin.

Thank you very much, operator, and thank you all for joining us today for our first quarter 2007 earnings presentation. We are going to walk through a presentation and that is available on our website, so if you haven't downloaded that, please do so now. We will follow our usual format. Chuck will start with some opening comments and then Gary is going to take you through the materials and then we would be happy to answer any questions you may have after that. Before we get started, I would like to remind you that today's presentation may contain forward-looking statements. Citigroup's financial results may differ materially from these statements. Please refer to our SEC filings for a description of the factors that could cause our actual results to differ from expectations. With that said, let me hand it over to you, Chuck.Chuck Prince: Art, thank you very much, and good morning everybody, and thanks for joining us this morning. I want to make a few comments before I hand it over to Gary and I want to put those comments in the context of the four priorities I have set out for Citigroup in 2007. You have heard these priorities before. I want to describe this quarter's results in that context. Our first big job in 2007 is to drive growth in our U.S. consumer business. You will recall the disappointing trends we have had there for several years now and in the second half of '06, we began to see some improving trends in revenue growth. You remember the chart I used in December and you will see an updated version of that in today's set. And I said in December that I was cautiously optimistic about how that turnaround was going. This quarter, I am pleased. The…

Thanks very much, Chuck. And thanks and good morning to everyone. We appreciate you joining with us. I look forward to having the opportunity to meeting many of you over the next few weeks. As Art mentioned, there are slides available to you on the website, and I'm going to go through each of these slides, and we'll start with slide number one. Slide one shows you our consolidated results for the quarter versus the first quarter of 2006. To summarize, our net revenues grew by 15%. Expenses were up 17%, including the $1.4 billion charge that we announced last week. The cost of credit was up 77%, and I'll come back and review that in some detail in a minute. In spite of the increase in credit costs and the $1.4 billion charge, our pretax profits were down by 3%. Our effective tax rate, however, went from 21.5% in the first quarter of 2006 to 26.9% this quarter. I will also explain that in just a few minutes. Net income from continuing operations declined 10% and EPS declined by 9%. And return on equity was 17.1% or if you exclude the structural expense review charge, it was about 20%. The results for the quarter include a number of items that I want to highlight. In the first quarter of 2006, against which we compare ourselves, we took an after-tax charge of $398 million. That was related to stock grants that were awarded to retirement-eligible employees in January of 2006. And we had a $598 million tax benefit on a continuing operations basis. That was $657 million on a net income basis related to the resolution of a federal tax audit, which reduced our effective tax rate to 21.5%. This quarter, we had four items that I would like to…

Great. Thanks, Gary. Operator, we are ready to begin the question-and-answer session. Before we do I might ask if everyone could limit their questions to one question and one follow up, we’d appreciate that. So operator over to you.

(Operator Instructions) And your first question comes from Betsy Graseck. Please state your company name before asking your question.

Hi. It's Morgan Stanley. Thank you. I guess my biggest question is related to the balance sheet and if you could just talk a little bit, Gary, about how you see the balance sheet positioned relative to potential changes in the yield curve?

Well, we actually have had a bit of a reduction in our exposure to the yield curve as we have come through the quarter. So the way we typically look at this is if we had a 100 basis point increase that happened instantaneously in the quarter, what would be the impact of that on our reported results. If that happened in this particular quarter, the impact would be about $51 million than it was last quarter at this time. So we are slightly less sensitive right now than we were three months ago. More broadly related to the balance sheet, as you think about the work that we are doing and the trend in our leverage ratios. As you saw in our overall leverage ratio, we had some deterioration in the quarter. We had mentioned this a little bit in the annual report that we had expected that would happen as we went through the year, but we tend to try and manage this above 4%. In this quarter, we obviously invested some of the balance sheet in our trading activities and you saw very nice growth in our trading activities, so the overall GAAP balance sheet increased more rapidly than our risk-based balance sheet, and I think that will continue to be the case. As we see opportunistically the chances for us to invest balance sheet in areas where we can drive good revenue and income growth, without taking on risk that is over proportional, we will probably make those trade-offs.

Okay. And do you see any, beyond that opportunities to change the composition or the shape of the balance sheet at this stage, with regard to either, where your asset mix is or your funding mix is?

No, I really don't think so. I mean, I think we are pretty comfortable with the mix of funding that we have right now and there is nothing on the horizon that would change where we are.

Okay, thanks.

Your next question comes from Glenn Schorr. Please state your company name before asking your question.

Thanks, it is UBS. On slide six, the U.S. consumer mortgage trend. In the footnote, you noted that it excludes $5 billion of first mortgages and almost $4 billion of second mortgages where you didn't have FICO and LTVs data. Just curious on what type of loans that might be, why you don't have the data, and how your gut is that that might change the results that you showed on the slide?

We actually just finished preparing this data over the course of the last week or so and we don't have a comprehensive view that includes all of the full scope of the portfolio. The underlying delinquency performance of the things that were excluded from the table have very good delinquency performance associated with them. So there was no, if you look at the underlying performance of those mortgages that were excluded from the table, with those that are included, there was just no underlying difference in the delinquency performance between the two.

Got you. I would guess it’s probably stuff that falls into that all pay no doc, low doc type of?

You know, we don't use that nomenclature here and don't think about the business in that way.

Okay. But you don't have FICO and LTV scores on the loans? Okay, I'm good. I don't need a follow-up on that. Thanks.

Great. Thanks.

Your next question comes from Guy Moszkowski. Please state your company name before asking your question.

Merrill Lynch. Good morning.

Good morning, Guy.

I also wanted to drill in on the credit issues a little bit. First of all, the press release and also your comments focused a lot on what, the way it is worded in the press release, the change in estimate of loan losses inherent in the portfolio, which overall sounds a little bit more, they are like there's a little bit more emphasis on the subjective forward-looking expectation than what we've heard over the last couple of years in terms of the reserving process being highly formulaic. Could you tell us a little bit about what thinking went into changing that sort of more subjective view of the future and how that impacted your decision to add to reserves?

Well, we always have some obviously some management discretion with regards to the credit reserves that we establish, and in particular, we thought it was prudent. As you think about the very early buckets of receivables portfolios they really haven't been around long enough to season to show any type of loss, it would make sense for us to try and anticipate what losses would be embedded in those portfolios when they mature. The mortgage portfolio, in particular, is a portfolio that had grown rapidly over the course of the last year and we thought it was a sensible thing for us to reflect that rapid growth and to ensure that we had taken reserves against these early buckets before there was any sign of credit deterioration there. So, I think our general feeling about the portfolio is actually very good. It is very nicely structured as you saw on the chart with the FICO scores and the LTVs, and we feel very good about the process that we have gone through in this quarter to think through reserving in each of the buckets to ensure that we are trying to anticipate somewhat what we believe the credit conditions will be throughout the year. And that is what you are seeing, Guy, reflected in the numbers.

And just if I could follow up also looking at page six, the panel at the bottom that shows how the difference has opened up over the last year between the NCLs on the one hand, which have been quite consistent, if you exclude the gray zone over the last couple of quarters as you pointed out, and the loan loss reserve, which has started to tick back up towards that sort of 147 level, but it is still, you know 20, 25 basis points below. Should we extrapolate from this that you are going to try and close that gap back up so that the loan loss reserves and the NCLs are more or less at the same level as they were a year ago?

No, no. I think, obviously, we are very comfortable with the reserve level that we established in the first quarter of this year. I think we are very thoughtful in thinking about the growth of the portfolio and the way we should reserve for these early buckets that I talked about. But if you look at the underlying numbers that are in the supplement itself and kind of trace through portfolio by portfolio, and look at what the NCL trends look like, particularly given the bounce-back from the bankruptcy law from 2005, the performance has really been remarkably good. And so I think what you are seeing here is a reflection of what we believe is likely to be a somewhat more difficult credit environment in the last couple of quarters of this year, but certainly no issue that would cause us to think that the 122 doesn't properly reflect the full amount of the reserve that we need at this point in time.

Okay. Thank you, Gary.

Your next question comes from Mike Mayo. Please state your company name before asking your question.

Mike Mayo, Deutsche Bank. Good morning.

Good morning, Mike.

Just a point of clarification. So, none of the $2.1 billion of restructuring savings are in this quarter including the previously announced technology optimization effort?

Mike, this is Bob Druskin. The previously announced technology stuff was in there. The new things that we found this quarter, as well as everything incremental is not.

So how much is left, say for this year?

Well, we said 2.1. There was originally, call it $400 million in the IT optimization. So, it is about $1.7 billion.

Okay. And I might have misinterpreted something, but Chuck Prince's opening comments, he mentioned he was positive about getting positive operating leverage not only in aggregate, but for each of the major businesses. Did I hear that correctly? And did he say that before?

I said that in December, Mike, at Citigroup Day. I'm not including in that alternative investments because I don't think that is really a business that can be measured year-over-year, but I said in December that each of our businesses has a plan for this year, and the company in total has a plan for this year for positive operating leverage.

And so do you think this quarter is an inflection point with all these savings ahead for this year?

Well, I don't like to predict anymore, Mike. People kind of throw my predictions in my face. I know you wouldn't do that, but others do, and so I think I would just like to stay away from predictions for right now.

All right. Thank you.

Your next question comes from John McDonald. Please state your company name before asking your question.

Yes, hi. It's Banc of America Securities. Gary, I was wondering if you could give a little more color on the causes of the margin decline this quarter.

Yeah.

You cited the rising short rates, and then also the trading impact, and then excluding the trading impact, what might cause in the future a stabilization of the margin?

There is a large piece of this that is related to mix, Mike, so let me just talk this through a little bit. As you know, the trading business is not really run to generate NIM in this way and so we do see some volatility from quarter-to-quarter. And a little bit more than half of this was related to the changes in the trading business. For the rest of the business, although there was compression overall, obviously the growth in the mortgage business, that being a securitized business relative to other parts of the business portfolio, causes some margin compression even assuming that the yield curve had remained identical year-over-year. And so, that will have I think an impact on this as we go forward. If you assume a static yield curve, which we have in our planning -- if you just assume a static yield curve and you assume a slight increase in the business mix that is tilted more towards securitized products, you are likely to see continued pressure to a certain degree on this measure and that is what is taking place in the quarter.

Okay. And just on a related note, is Chuck's cautious optimism about the U.S. consumer revenues, is that really driven by the volume outlook that you see, or is there some expectation that that might be coupled with the margin getting better or maybe just a little color on what’s driving the cautious optimism in the U.S. consumer?

John, this is Chuck. The reason I said that in December is if you look at that chart, which is page 9, you can see when I said it in December, we were really just exiting a very, very difficult period, which goes back a number of years in terms of organic growth, we really did not have good organic growth. Going back a long time in this business, it was all deal-driven, and I said then and I say again now, I want to see this on a sustained period of time and it is obviously a mix of volume and margin improvement. The yield curve is not helping us, so more of it is volume-driven now than it's margin expansion and happily the volume is helping us a fair amount in that regard. But the cautious optimism is, I want to see it on a more sustained basis than just a quarter or two. So when we fill out the whole year and it looks like this then maybe I will feel a little less cautious and more optimistic.

Okay. And just focusing on what the optimism part, I suppose or the cautious part that’s really driven by what you're seeing in some of the volume metrics?

It is that as well as the relative stabilization of the NIM deterioration. You know compared to a year or two ago when it was on a huge stair-step down, it is at least in a stabilizing frame right now.

Okay. Thanks.

Your next question comes from Joseph Dickerson. Please state your company name before asking your question.

Hi. My company is Atlantic Equities. Hi, Gary.

Hi. Joe.

I have a question just on the share repurchase.

Sure.

Where you've indicated that you won't be doing any more repurchases this year. Is that mostly related to Nikko or is there stuff out there that we don't know about that you might act on?

No, it is…

Well, first of all, we have had a series of acquisitions that we have done. So the ABN AMRO deal for example plays into the equation here as well and we contemplate that the Nikko deal obviously will be done here over the next quarter. And so as we think ahead about that and think of the other growth opportunities that we have, our best expectation, I think the way I said it as I sit here today, our best expectation is that it’s unlikely that we are going to be able to resume the repurchase program this year. That said, I mentioned a couple of times that we are very cognizant of the opportunities that we have to continually monitor the balance sheet and identify opportunities to improve our capital usage and we are going to continue to do that. And as soon as we can be back in the share repurchase business, I think it’s fair to say we will be back in the share repurchase business.

Thanks.

(Operator Instructions) Your next question comes from Meredith Whitney. Please state your company name before asking your question.

Hi. This is Carla Krawiec at CIBC on behalf of Meredith. We were just wondering if you could quantify the amount of the securitization gains in the quarter?

The incremental securitizations were minimal. They were virtually none year-over-year in the quarter, Carla?

Okay. Thank you.

Your next question comes from David Hilder. Please state your company name before asking your question.

Bear Stearns. First, I just wanted to understand the theory behind accruing compensation on the move to fair value accounting under SFAS 157. I mean, the positions presumably didn't change economically. You just changed the way they are accounted for. So is that compensation that will actually be paid out?

What our thinking was, David, prior to the time of adopting this principle, we obviously paid compensation on the movement of the underlying derivatives that were now evaluated differently. The change during the course of the quarter caused by the addition of our credit rating into the valuation of the derivatives resulted in a pick-up obviously in income. We thought the right way to account for this was to accrue incentive comp against that. We thought that was the proper way to do it. And as you know, the overall incentive comp that we will pay out on a full year basis will be determined by the actual performance of that business over time. So as this now moves over time, has more or less volatility as we go through future quarters, the incentive comp will go up or down and then finally when the full year's results are in, those determinations will be made. So there is no lockstep tie-in necessarily between that and the outcome on incentive comp for the year.

Thanks. And then a separate question I think for Chuck, if it is appropriate, about the purchase of Old Lane. I am very familiar with what the team there achieved when they were at Morgan Stanley and they were obviously very successful in raising funds, but their track record in managing hedge funds is relatively brief. And as I understand it, last year when you sold the asset management business, part of the reason was that you didn't feel that you had management there to improve its performance. Presumably you could have found a management team for somewhat less cost there than what it has been reported that you are paying for Old Lane. So, I guess, I would like to understand what you are hoping to achieve there?

Well, David, a fair question. In terms of Old Lane, we see that as much as an investment, as an acquisition. We are getting a great group of people; about 120 people will come over. We end up with kind of a plug-in, in terms of our whole approach to alternative investments as opposed to hiring a head of it who then has to go and re-staff the whole organization. And while their performance is relatively young in the sense of how long they have been in business, I think it has certainly been perfectly acceptable. So, I feel very good about buying a team rather than an individual in that sense. In terms of asset management, that was a completely different situation. Most of our profits from that business came from our retail business, and as you know, there has been a self-selection away from selling proprietary products in the industry generally. So our institutional side of our asset management was pretty weak, in hindsight, and so that was what really led to the decision fundamentally to exit that asset management business. So, in my mind at least, they are not analogous situations. But coming back to Old Lane, I think getting the whole team in was really the distinguishing characteristic there.

Thanks, very much.

Your final question comes from Betsy Graseck. Please state your company name before asking your question.

Hi. It's Morgan Stanley. My last question is just on the target capital ratios that you have and it relates to the comment about ceasing the share buyback. I just wanted to understand what kind of capital ratios you are looking to manage the balance sheet to?

Well, our binding constraint historically has been TCE, and TCE we try to keep at the level of about 6.5; I think we have talked about that historically. Obviously, the overall leverage ratio is important to us as well and as I mentioned, we will keep that at four or better as we go through the year and hopefully make thoughtful decisions about the trade-offs that we make there. So we are very focused on the balance sheet. As I mentioned, share repurchases are important to us, but we have to manage the capital in the context of all of the things that are going on in the company.

But, since that is the same way that the company has been operating in the past, are you signaling an expectation for a higher level of asset growth?

Well, we have had a pretty consistent level of asset growth now here over the last few quarters. This quarter had a good asset growth. I think you need to distinguish between asset growth overall and the growth in risk capital, and what we have seen is faster GAAP asset growth than risk asset growth. And that has allowed us to expand our fee-based businesses in ways that have been very attractive, having an excellent quarter this quarter, and because those risk-based assets have grown more slowly. And, no, I am not trying to signal any change in that strategy with what we are talking about today.

Okay. And the buyback is on a net basis that you're talking about or on a total basis?

On a total basis.

Got it. Okay. Thanks.

Operator, are there any further questions?

Yes, sir. No, sir. There are no further questions.

Okay. Well, thank you very much. Thank you all for joining us today and of course, please give us a call at Investor Relations for any questions that you have during the course of the day or over the next couple of weeks. Thanks, and this concludes our call.