Good morning, ladies and gentlemen, and welcome to Citi's second quarter 2007 earnings review, featuring Citi’s Chairman and Chief Executive Officer Charles Prince; Chief Financial Officer, Gary Crittenden; and Chief Operating Officer, Robert Druskin. Today's call will be hosted by Art Tildesley, Director of Investor Relations. (Operator Instructions) Mr. Tildesley, you may begin. Art Tildesley: Thank you very much, operator and thank you all for joining us today for our second quarter 2007 earnings presentation. We are going to walk you through a presentation and that is available on our website, so if you haven't downloaded that, please do so now. The format we will follow will be Chuck will start the call. Gary and Bob will take you through our presentation. Chuck will have a few concluding remarks, and then we would be happy to answer any questions that you may have. 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 those 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 turn it over to you, Chuck. Charles Prince: Thank you and good morning, everybody. Thanks for joining our call. I want to begin by thanking everybody on our team for delivering a record quarterly performance, the best we have ever done. I am very pleased with the underlying health and quality of our business. I am especially pleased this quarter with a couple of particular items. One, the growth in our international franchise; second, the performance in our capital markets related businesses, generally, especially given the market conditions we all saw in June. The benefits we are just beginning to see from Bob Druskin’s…

Thank you very much, Chuck and good morning to everyone. I am going to start out with slide 1. It shows our consolidated results for the quarter versus the second quarter of 2006. To summarize our second quarter results, net revenues grew 20%. Net interest revenue is up double-digits for the first time since the third quarter of 2004. Expenses were up 16%. Whether you adjust for the press release disclosed items or look at our results on a reported basis, we had positive operating leverage in the quarter. The cost of credit was up 50%, and as Chuck said, I will come back and describe that in some detail in a few minutes. Despite the increase in credit costs, pretax income was up 19%, net income from continuing operations was up 18% and EPS increased by 18%. Our return on equity was 20.1% in the quarter. Included in these results are three items which impact the results for the quarter. First, in the second quarter of 2006 we had one item. We booked $163 million pretax gain on the sale of our upstate New York branches to M&T bank. This quarter, we had two items. First we released $300 million of pretax litigation reserves related to Worldcom and other research matters which was a benefit to our expenses in the market and banking business. Second, we had a $96 million APB 23 tax benefit in our global wealth management and market and banking businesses. Let me turn now to slide 2. This shows a five quarter trend of some of the key drivers of our businesses. Strong momentum continued to cross these drivers, which were the underpinnings of our 20% growth in revenues. The momentum was especially strong in our international franchises, which drove revenues up 34%. Drivers of…

Good morning. Slide 6 shows the year-over-year trend of our expense growth as well as the main drivers of that growth. When we discussed our structural expense review back in April, we mentioned that using our public disclosure, you would be able to track our progress in headcount growth and in expense growth relative to revenues. On both structural expense saves and total headcount reductions, we are ahead of our commitments, and so we are pretty pleased so far with the initial results. GAAP revenue growth as you saw was 20%. GAAP expense growth is 16%. BAU expense growth of 14%, that was referenced, the two items which you can see on the chart. The $300 million WorldCom litigation reserve release which had a 2 percentage point benefit and acquisitions had a 4 percentage point impact. Nikko was the main driver in there, followed by Grupo Uno and Cuscatlan. So BAU revenue growth at 16%; BAU expense growth at 14%. But a little bit more on BAU expenses. Those include expenses from the roughly 530 net new branches over the last 12 months that we have opened. That was about 800 gross; we closed some, but that added about 1 percentage point to expense growth. More importantly, I think, year over year close to 60% of the expense growth was driven by markets and banking. They have a large degree of variability in their expenses; and they had a very impressive revenue growth rate that drove that. So expenses generally look okay, so let's turn the page to headcount. Slide 7 shows the positive trend in our underlying headcount growth rates. Although the graph indicates significant year-on-year growth, this was driven as you can see predominantly by acquisitions. Excluding acquisitions, first quarter '06 to first quarter '07, just looking back…

I hate to beat a dead horse, but on the loan syndications front can you give us some idea of the extent to which, despite the very robust capital markets and banking revenue results, you actually did take some of the hits that you were describing? I look at the combination of advisory fees, debt underwriting fees, debt trading revenues, and lending revenues. When you add them all up, they are down about $500 million from the first quarter. Is a good chunk of that some of these reserves that you took? Or not reserves; loan pricing hits? Gary Crittenden: The marks that you talked about were not nearly of that order of magnitude in our results overall. So they were much smaller than that on the four deals that I talked about at the time that we ended the second quarter.

Thank you. On U.S. consumer, there was a big increase in the loss ratio and about a $0.5 billion upswing in delinquent balances. You did add a couple hundred million dollars in specific reserve build in the first quarter but only about $39 million additionally added this quarter, even though you did see the swing in delinquencies. This quarter you have about $57 billion, I think, of sub-prime assets. Could you give us a little bit more color on the process in thinking about what those reserve additions should have been? Gary Crittenden: As you might guess, we go through this and look at quarter by quarter; and we make our best estimate as we go through each quarter about how we think the losses that are inherent in our portfolio will evolve over time. We did that in the first quarter, took some charges in the first quarter. We took additional charges in the second quarter that we just came through that were primarily, in this particular case, related to the U.S. card business. So you won't necessarily see in lockstep additions to reserve in each business that tie directly to the delinquencies as they are evidenced in that quarter, because we may have in a prior quarter anticipated that and expected that that would be apparent in future quarters, and have already taken actions on that. You can't draw a one-to-one relationship between change in delinquency or improvement in delinquency and changes that we make in the loan loss reserve on a particular line item. I think you really have to focus on the overall reserving process as we go through and look at each of the individual lines of business. I think the important thing here is that our expectation continues to be that we're going to see some deterioration as we go through the year. As I said in my earlier comments, if that expectation is true then it is very likely that we will have the similar barely material additions to our credit reserves as we go through the remainder of the year.

If I could just ask a question operating leverage in the consumer businesses. It does seem, if you drill down business by business, it does seem like it is still weak. We saw positive operating leverage in the U.S. and international cards business, although the U.S. cards business basically better because it has got declining revenue. But in the other consumer businesses globally, it really did seem like the operating leverage was still kind of weak. Should we expect those metrics to improve over the remainder of the year, given Bob's cost management programs?

It could be, although I would tell you that we're still opening branches at a pretty healthy rate and branch openings have a negative impact on operating leverage as you ramp those up. We are still pending pretty heavily too, especially internationally, as we grow those businesses. We could ratchet those marketing and advertising numbers up and down. We could slow or quicken the rate of branch growth, which we are looking at. But as we open branches, and we are doing it in significant numbers, that is going to have a depressing impact on operating leverage. But again, that is a dial we can ratchet up or down.

Are you still operating pretty much within the context of the 50% or so reduction in that investment spending that you had outlined late last year?

The answer is yes. Operator : Your next question comes from Mike Mayo - Deutsche Bank. Mike Mayo - Deutsche Bank: Good morning. Could you provide more color on the expense program? You have had two quarters in a row of positive operating leverage. How far along are you in this program?

We laid out some numbers in the April review, post the first quarter strategic expense initiative and we are tracking pretty much right along the path we thought we would be. I expect that over the second half of the year, we will continue to move forward and hit the numbers we outlined in April. We are a little bit ahead. I wouldn't say we are materially ahead, but we are ahead both on expense initiatives and headcount reduction. Again, we are tracking this with great specificity. We have a few hundred projects underway. For each one we know how we are tracking along a month-by-month timeline, which ones are ahead, which ones haven't started yet because some of them have a longer tail to them. But I would also just say that what we did say we would do is slow the rate of expense growth, which we are comfortable that we will do. Other than the kinds of variable expenses that you see in Smith Barney and in markets and banking in particular, which are heavily revenue driven or pretax, pre-comp driven. But in terms of how I feel about where we are, we are right on target so far. Mike Mayo - Deutsche Bank: What percent of the savings have you achieved?

It is less than half. Mike Mayo - Deutsche Bank: That helped this quarter get positive operating the leverage, or not yet?

Yes, it did help, Mike. Mike Mayo - Deutsche Bank: A related question as it relates to revenue growth. International consumer revenues are growing almost 40% annualized. Even if you take off one-third, that is kind of a high pace. Is there anything seasonal in that? Why such an acceleration? Gary Crittenden: We have enormous success in emerging markets in the markets and banking business. It really is a distinctive competence of the company and is really the primary engine behind that revenue growth. So obviously on the consumer side, we did well. If you adjust for the Japanese gray zone impact that was up 24%. But the number that is really powering the number that you're seeing is the enormous success that we have seen in emerging markets with the markets and banking business. Mike Mayo - Deutsche Bank: Is there anything seasonal, though, or something that is temporary? Gary Crittenden: Well, there always is a seasonal pattern where on average, four out of the last five years, there has been a reduction of about 14% or so in revenues from the second quarter to the third quarter. That doesn't mean it will happen this year, but historically that has been the case, so there is a bit of a seasonal pattern. Obviously, those are very hot markets today with lots of equity underwriting opportunities. You saw our equity underwriting was up 90% in the quarter. A lot of that is coming from these markets where there is a lot of entrepreneurs coming to market for the first time. Mike Mayo - Deutsche Bank: Gary, your ROE is above your target this quarter. I thought at American Express you were pretty ROE focused. Any thoughts on changing the ROE target? Gary Crittenden: The 20.1% came together both because of…

Just in regard to bridge loans, you responded about the magnitude was considerably less in the write downs than the drop in revenue in the second quarter. I was just wondering if the third quarter had ended yesterday, what comments you would make in regard to the writedowns that you anticipate for the quarter. Gary Crittenden: Well, it is really hard to say because it will depend obviously on the environment here. The month of August is a slow month, generally, for this kind of activity. So it is very difficult to say. I think everybody everyone will have a better idea when September comes around and just a more normalized level of activity than we know today.

But if the quarter had ended yesterday, what would be your expectation? Gary Crittenden: The total size of the activity that we have is larger than the four that I had mentioned just a few minutes ago. The total size of activity that we have that will get priced in this quarter is larger than that.

By how much is it larger? Gary Crittenden: We didn't quantify that, but it is larger than what I talked about before. The best way, I think, for me to quantify this is that this type of activity, the leveraged loan business and the high yield business represents about 5% of our total revenues. This would be a revenue-related impact if we have to change the terms on these loans. Again, as I mentioned before, it was a relatively small portion of the $500 million reduction that was mentioned earlier on the call, on the four loans that we took at the end of the second quarter. What I am really reflecting here is that it is just very difficult right now to reflect what that revenue impact will be. It just would be hard. Anybody who would be making that kind of a forecast would be trying to rely on things that simply have not yet happened.

But the related dollar amount is larger, so possibly the dollar amount of the writedowns could be larger? Gary Crittenden: Yes, it certainly could.

Just in regard to Steve's question, in regard to the reduction in the sub-prime exposure, were there losses or writedowns taken in those reductions? Gary Crittenden: Well, for the most part, those are loans that we obviously try and market appropriately for whatever the market conditions are. So the answer is certainly yes. We use third-party benchmarking wherever we possibly can. We look at analogous types of structures. We do everything we can to ensure that those loans are marked at the appropriate market environment rate. So the answer is surely yes.

Those losses would have been reflected in fixed-income trade? Gary Crittenden: Yes.

Can you give any idea as to what the amount of those were? Gary Crittenden: We have not broken it out specifically.

Do you think that getting from $13 billion to wherever you are going, you will have losses of a similar amount? Or might they be lower ahead? How should we think about that? Gary Crittenden: Impossible again for me to say. As I mentioned, this is an uncertain market right now and it is very difficult to forecast exactly where the market is going to go. If we knew that, we would be making bets on it, obviously. But we don't know exactly where that is going to go. What we do is we have excellent risk management capabilities around this. It is monitored very carefully. We really do try to reflect the market value of these things by going through a careful process to ensure that their carrying values are correct. We are completely confident that the carrying values were as correct as they possibly could have been at the end of the second quarter. Depending on how things evolve in the third quarter, the number will change.

Is 13 going to zero or do you have some other number in mind? Just how should we think about that aspect? Gary Crittenden: It is much more complex than that. You know, there is no specific number that we're targeting. It depends on what the market conditions actually are during the time period. Operator : Your next question comes from Dave Hilder - Bear Stearns. Dave Hilder - Bear Stearns: Just a question about balance sheet growth. Obviously, earning assets have gone up a lot both organically and from acquisitions. Given your comments about leverage, what might we look for over the next couple of quarters? Gary Crittenden: Well, we are obviously very focused on our balance sheet. We have done some things that you can see in some of the line items of the balance sheet so if you look in the supplement itself and look at some of the balance sheet line items -- for example, our investment line item on the balance sheet is down by 6% this quarter and down by more than that if you look at it compared to the first quarter of 2007, reflecting a reduction in the mortgage securities that we hold on the balance sheet; reflecting that change. We are focused broadly on the productivity of the balance sheet. I think versus the end of last quarter, we had roughly $199 million, $200 million increase in the balance sheet. About $111 million of that was attributable to the acquisitions that we did. About $20 billion of that was related to an issue that we had in our GTS business on the last day of the quarter So the organic growth in the balance sheet was about $70 billion on what at the time was a roughly $2 trillion balance sheet,…

What Gary said is something I would echo. We don't normally talk about month by month but we did have very consistent performance in our fixed income businesses across the quarter. Generally, there was strength in almost all of our products. Rates is a tough business, as it has been for some time but that is nothing new. But some of the areas that we have been investing in, actually, over the last couple of years have been very strong: derivatives, structure products, those kinds of things, where we have devoted resources to building and those have been very good. Additionally, we have had very good results in our emerging markets trading. You know, we have trading desks in 65 or 70 countries around the world. Part of the growth in the international marketplace has been reflecting itself in our trading results around the world. So I would say we had very good results in emerging markets and international, generally. James Mitchell - Buckingham Research: Fair enough. Maybe I will try one more tack. On the MBS business, you guys are obviously talking about risk management. There is obviously dynamic credit default swap hedging that you do against the residuals and the other sub-prime stuff on the balance sheet. It seems to me that the underlying asset values have declined less than the appreciation and default swaps. Is there any kind of comment you have on how that hedging has worked, if that is a fair statement or not?

Well, it is a complicated question, and I am not sure that we would normally get into that level of detail. I would just tell you that the strong results we had in the quarter are indicative, I think, of a pretty good risk management approach by our trading desks and generally effective hedging. So we were pleased with their results, but I don't we can go into more detail than that. Operator : Your next question comes from Meredith Whitney - CIBC World Markets.

Hi, Gary. I just have a couple of cleanup questions. I understand what you said about Japan; and that was consistent with Chuck's guidance even at the beginning of the year in terms of really no net new income out of the area. But can you extend further into what that means into 2008? When would you be able to tell us that? Then I have just a couple of follow-ups. Gary Crittenden: If you think about the dynamics here a little bit, we took a charge in the fourth quarter of last year that was not insignificant. It is hard to know exactly how the business will trend over the next few quarters because to say that the parameters around that business are stable I think would be an overstatement. It is a fluid situation there, and both the judicial process and the regulatory process continue to be in flux. That changes your view of things as things move over time. So I guess that is a long way of saying that we have taken obviously one significant charge. We have been adding to our credit reserve as we have gone through this quarter; and we did that again in the quarter that we have just come through. We have a large charge that we are up against from a positive perspective in the fourth quarter of this year. But it would be hard to say exactly how that business will evolve as we go into 2008. Now, what we have done is we have refocused the business on the so-called white zone pricing part of the market. That is a normal evolving business. If you could kind of slice off the gray zone piece and look at only the white zone piece, that is a normally evolving business, but obviously a much smaller market than the market that we used to address. Roughly two-thirds of the addressable market, historically, has been above a white zone type of interest rate pricing. Those needs are either in some way going to go unmet in Japan or some other structure is going to evolve to service those needs. But much of the primary market that used to be served by consumer finance companies can no longer be served by consumer finance companies because of the way the regulations have evolved. I think the way I would think about it is, assuming that the regulatory environment stabilizes it is likely to be a smaller business in the future than it has been in the past. We are going to be working, obviously, to work through whatever credit exposure that we have there over the next few years, and hopefully growing slowly on the white zone side. But as I mentioned, that is a smaller market. It is a considerably smaller market than the older, higher interest rate market used to be.

On the guidance that you are giving or caution that you're giving for the third quarter, is that vis-à-vis what expectations are out there or vis-à-vis just relative to the strong quarter that you had this quarter? Gary Crittenden: As you know, we don't provide guidance. What I was trying to do was kind of reflect on third quarter of last year. There are just a number of factors about the third quarter of last year that made that quarter a quarter that is different than where we are today. I tried to reflect that as I went through the various elements. I think as you just kind of go down through that list, I have got them on the slide at the end of the deck. It will highlight for you the things –

No, no, that is understood. The Street wasn't expecting a gangbuster third quarter anyway, so I was just curious as to why explicitly point out that slide, that is all my question was. Gary Crittenden: I wanted to make sure everybody was focused on last year's third quarter.

Then the last question is, we get your master trust data obviously monthly. There is nothing in that that would lead us to believe that credit will turn on cards. So is what you are seeing the on-balance sheet stuff that gives you concern? The private-label stuff that gives you concern? Could you elaborate on that? Gary Crittenden: Well, I think, it honestly is what we try to do is we try to sit back and say, if we think about the losses that are likely to occur in our credit card business over the next X number of months, have we properly reflected what those losses are going to be in the reserve that we have at the moment that we close our books, on June 30, in this particular case. As we go through that, we go through that process obviously in all of our businesses. We do it each quarter. As we did that for our card business in this quarter, our belief was that we needed to add to the reserve by the $242 million, I think, or so that it was that we added in this quarter. So it really is that process. It is, obviously reflecting on what losses we have experienced historically, what our current loss rates are, what we anticipate those loss rates to be as we go forward, and ensuring that we're properly reserved at the time we close our books. The net of that was the decision that we made in the quarter to add to the credit card loan loss reserve. Operator : Your final question comes from John McDonald - Banc of America.

Just on the cost saves clarification from Bob. You got less than half of what you are targeting for this year. I think the target for this year was $2.3 billion, $1.7 billion from the Druskin plan and $400 million in IT saves. Is that right, Bob?

Yes, that is exactly right.

So in the first quarter, you said you got the $400 million in IT. So that left $1.7 billion for the next three quarters.

Right.

You're not saying how much you got this quarter?

No, I would just say that what I told to is that it would really start to pick up in the second quarter and then track through the end of the year. We are a little less than halfway through it.

Okay, so less than half of the $2.3 billion?

Yes. Art Tildesley: Operator, I think that concludes our session. For all of you on the call, thanks for joining us today. Any other questions you have, please contact us in investor relations. Otherwise, that concludes our call. Thank you.