Good morning, ladies and gentlemen. Welcome to Citi’s fourth quarter and full year 2007 earnings review, featuring Citi’s Chief Executive Officer Vikram Pandit and Chief Financial Officer, Gary Crittenden. Today’s call will be hosted by Art Tildesley. 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 this morning. Welcome to our fourth quarter 2007 earnings presentation. The presentation that we will be walking through is available on our website, so you will want to download that now if you haven’t already done so. The format we will follow is Vikram will begin the call, Gary will take you through the presentation; Vikram will have some concluding remarks and we would be happy to take 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 these statements, so 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 Vikram.

Thank you, Art. Good morning, everyone and thanks for joining us today. Going forward, Gary will host the quarterly conference calls, but I thought it was important for me in my first few weeks to share with you some comments on our performance, and also on the changes we are making at the company. Let me start though, first, by stating very clearly that Citi’s fourth quarter results are unacceptable. The sub-prime market deterioration has been unprecedented. Other credit metrics such as consumer credit, have weakened as well. Even so, we need to do better and we will do better. As you know by now, we took over $18 billion in writedowns and losses on our sub-prime exposures. We increased our reserves and had losses in our U.S. consumer business, up over $4 billion. These numbers completely overwhelm the record performance in many, many of our other large businesses, as well as strong performance in a number of our other businesses. These are obviously complicated times in the markets, and we want to be transparent with you on the risks we have and their impact on our results. We will be very candid with you today, and also in the future, so you can clearly understand the decisions we make. In my five weeks as CEO of Citi, I have had an opportunity to meet a number of our people, our clients, our investors and regulators. I plan to continue to do that. I have not yet finished the analysis of the work I said I would, to position our businesses for the future. I am continuing to do that and I will report to you on that when I am done. The actions we are taking today should not wait for that comprehensive review, and they are completely consistent…

Thank you, Vikram, and good morning to everyone. Thank you for joining us, and let me apologize in advance for the length of my prepared comments. There is a lot to cover today. I’m going to turn to the slides that are now available to you on the website. Slide 1 shows you the consolidated results that we have for the quarter. To summarize our fourth quarter results, net revenues declined 70%, primarily on $17.4 billion in writedowns in fixed income on our direct sub-prime exposures, partially offset by continuing underlying growth in many of our other businesses. Expenses were up 18%; I’ll provide some detail on this later. As Vikram mentioned, the reengineering plan for 2008 is underway and we are very focused on impacting expense levels at the company. Cost of credit was up 231%, driven primarily by a substantial charge to increase loan loss reserves and higher net credit losses in our U.S. consumer business. These factors drove a loss of $9.8 billion for the quarter, or a loss per share of $1.99. The full year results, which are heavily affected by the fourth quarter, net revenues were down 9%, expenses were up 18%, the cost of credit was up 133% with approximately two-thirds of our increase in our U.S. consumer business. Our net income and earnings per share declined by 83%. Slide 2 shows the number of items which were significantly affecting results in the quarter. First, $18.1 billion from the writedown and credit costs on sub-prime related direct exposures in our fixed income markets business. Our net super senior ABS CDO direct exposure was $29.3 billion and our gross direct sub-prime exposure related to the structuring and lending business was $8 billion at the end of the quarter. Second, we had $5.1 billion in credit…

Thanks, Gary. There is no doubt that we are in the midst of a very challenging environment. Our results in the future will be influenced by the economy, as will everybody else’s. But we are working as hard as we can to lead with our front foot and capture opportunities for our shareholders. I am taking a clear-eyed view of our company. This is a company with great promise; the breadth and depth and quality of our franchise around the world are unique. Citi is a unique company, unmatched in scale, expertise and brand. When you look at the major growth trends in financial services, our businesses are squarely positioned against these, especially in the international markets. I’m going to have much more to say about that on Citi Day which we intend to schedule in the near future. I should not end without saying it is a privilege to work with the board, Irwin, Gary and the whole management team to help Citi regain its momentum and drive towards growth. I’m looking forward to meeting you, our investors and analysts. I have had a chance to work with many of you over the years and I welcome your ideas. Before I turn it over to your questions let me make two more points. One, I want to thank Art for all he has done in the last few years as head of IR. He is considered by many to be the best in the business. After helping with the transition time in IR, Art will move into one of our businesses in a senior capacity. I look forward to working with Scott [Freinrich] as he steps into his new role as Head of Investor Relations. Secondly, this has obviously been a very difficult quarter for us and there is no getting around that. However, we are facing forward. Given this environment, I’m not going to make any promises; there are risks, as outlined by Gary. I will ask you to measure us on our actions and our performance. Our performance will be driven by a strong risk culture, the elimination of unproductive expenses, the improvement of asset productivity and talent. By focusing on these priorities, we will drive shareholder value. Thank you. Now Gary and I will be happy to take your questions. We are going to have plenty of time to talk about strategic and other issues in the future. Obviously a number of your questions will likely be related to the financial results.

Operator, we are ready to begin the question-and-answer session. Before we do, if I may ask that everyone to limit their questions to one question and one follow-up we would appreciate that. Thanks.

Your first question comes from Guy Moszkowski - Merrill Lynch.

First of all, just to address the significant deterioration in credit quality in the U.S., especially in the real estate lending areas, can you give us a sense for whether that deterioration accelerated significantly in December or was it pretty much consistent over the last three or four months?

Guy, I think it is fair to say that it has accelerated from month to month. You might recall at the end of the third quarter we talked about an acceleration towards the end of the third quarter; that really has continued. So the quarterly line is what you can actually see in the documents that we provided to you, but I think it also advanced as we went through the quarter.

You talked about how many months of reserves you now have relative to current loss rate, but how should we think about the reserve build that you did in the quarter relative to what the models are telling you that you should be expecting over the next year?

What we try to do, obviously, is we try and capture the losses that are inherent in the portfolio and the reserving that we do. We did a lot of analysis on the portfolio and a relatively small portion of the portfolio is accounting for a large portion of the losses overall. Using that insight, we obviously have tried to capture what we expect to be losses that will evolve over time in the portfolio and so we have done what we believe is possible at this point to capture those future losses. Obviously this is a very strong reserve level. I think on a relative basis and in absolute terms it is a strong reserve level, but we think that’s the appropriate level to be reserved at given the way the environment has deteriorated and the losses that we have observed.

If I can turn for a moment to the CDO exposure in the investment bank, you are now carrying these exposures at around a one-third haircut to where you were carrying them at the end of the last quarter. How does the carrying value relate to the initial or par value of the portfolio? As you described it, you initially said that there was really nothing observable that you could use to mark these, and yet you did at the end say that you did somehow incorporate the ABX indices. Maybe you can clarify for us a little bit how you did that?

I don’t know off the top of my head the exact par value. I do know we took mark of about $1.9 billion or something like that in the third quarter, so if you added that on to the position you would come relatively close to what the beginning par value was of these securities. But it was roughly of that order of magnitude, I would say. Obviously I went through the process of describing the cash flow model. When you complete that whole exercise, one of the things that you normally do is you take a look at what kind of a result would this give me against indices that are trading that in some way are reflective of securities that have similar types of ratings? There are inherent disadvantages or inherent problems with the use of the ABX index as a base for doing valuation, but it is a useful cross-check against our cash flow model so that is what we did; after we ran the cash flow model we checked it against those indices to see if we could uncover any inconsistencies.

Vikram, as you have spent the last several weeks beginning to review the businesses, what’s coming together in your mind as the framework that you will use for thinking about the retention or divestment of businesses or sub-businesses? Can we get some flavor for whether you think there is scope to simplify the company materially?

Guy, you know we have got tremendous businesses positioned extremely well against a lot of the growth trends. I am going to reveal all of that. I think it is a little too early to comment on any of that; suffice it to say that when you look at the franchises we have got around the world, we have a tremendous information edge as an organization. We have an ability to move capital around. When you look at client needs, and the complexity of financial markets is increasing; we have got a unique capability of addressing complexity for our clients because we have the breadth and depth of products and services they need. When you look at, again, the secular growth trends in the financial services businesses around the world, a lot of our businesses as I said before are squarely positioned around that. So there is a lot of thinking that’s going into that, but I hope to talk a little bit more about that in the future, hopefully on Citi Day.

Your next question comes from Betsy Graseck - Morgan Stanley.

Vikram, it would also be helpful just to understand how you are thinking about prioritizing the investment opportunities that you have. I would think that in meeting with the folks in the field you are getting lots of ideas for how to reinvest in the business and to grow from here. It would be helpful to understand how you are thinking about making those decisions.

I think that’s a great question. You know where the growth is in financial services, Betsy. There is nothing that I’m going to say that’s going to come as a surprise to you. We are investing in that growth. Whether it is narrow areas in our trading businesses or whether it is broader areas such as emerging markets and the growth we see there, you will find that we are extremely disciplined in making sure that the investment dollars are going to the right place and we are equally disciplined as we started the process to make sure that we are looking at businesses that are not growing and/or the returns are not adequate and those are the businesses we’re divesting and/or cutting back on. That process is something we have already begun as well and again, a lot more to talk about there in the future.

obviously reinvesting in financial institution related businesses comes, in some cases, with a requirement for capital. Since you are post the capital raising efforts that you announced this morning, that you plan to be completed during this first quarter, you will be sitting with capital levels that are above minimum levels that the organization had outlined for itself in prior calls. It would be helpful to understand if at this stage, post these capital raises, you feel you are in a position of excess capital such that the delta between your minimum and where you stand post the capital raise would be able to get reinvested in a relatively short period of time.

[inaudible] -- our normal exposures in the business and as we have played forward these recession scenarios that I talked a little bit in my prepared remarks, we want to be able to ensure that in a stress scenario we have sufficient capital to be able to do what we need to do. The way I would think about this is in a downside scenario we believe we have worked hard to make sure that the capital formation we have in place is good. Should that downside not materialize we have, just as you said, opportunities to put that capital to work in productive ways and client circumstances that are likely to be quite unique over the next couple of quarters. Regardless of the outcome, we feel like it was the right amount of capital and it will be put to good use.

I missed the beginning part of your commentary, Gary. Did you indicate that you feel like you are just meeting your minimums at this stage or that you have some excess?

Well in the deck, if you go to the back part of the deck, it shows where we are in terms of our ratios and that would show we are above the minimums. But I did go through and talk a little bit about the risks that we see in the environment and obviously there is a possibility of a downturn here. We have to be thoughtful about the prospects for a downturn. So it really depends. This is obviously going to put us in a position that will allow us to exceed the capital ratios, assuming a fairly benign environment. But it also allows us, if the environment is much less friendly, to not have a capital issue down the road.

Just to be clear on the capital raised, $12.5 billion of private placement commitments already, $2 billion public offering and convertible preferred and then you have an additional offering of straight preferred. Have you given an indication of the dollar amount associated with that?

We haven’t yet; obviously it will be dictated in part by the demand in the marketplace.

Your next question will come from the line of William Tanona - Goldman Sachs.

In terms of the follow-up on the last question, I actually didn’t hear you in terms of the response there for the additional offerings of the straight preferreds.

We have not sized the amount of the straight preferreds yet. That will be decided at the time we do the offering and will be based obviously on what we view the capital needs to be and what we think the demand in the marketplace is.

On that capital, as we think about all these capital raises that you have done, how should we think about the impact to earnings? As I think about the fourth quarter you did the $7.5 billion, obviously at 11%, some of that was tax deductible, some wasn’t. You added in the $4.3 billion of the enhanced trust preferreds; now we have got the $12.5 billion in terms of the convertible preferreds at 7%. Is that a straight 7% or is some of that tax deductible? In terms of what you think the rate might be on the $2 billion of the convertible preferreds you plan to offer to the public, do you think that’s going to be at similar rates to the 7% or the 11%? I’m trying to get a sense as to what the impact is going to be to earnings.

It is a lot of moving parts. We do have a good supplemental disclosure we have provided around this particular offering that we are doing now. I think if you take that in conjunction with what we have already said about the [inaudible] offering, add it together it gives you a good feel for how these work. The actual dilution associated with this depends on how the money is reinvested. If you assume the money here is really used to paydown long-term debt, obviously that has a negative comparison associated with it because this is not tax deductible, the 7% is not tax deductible. So relative to our cost of long-term debt on an after-tax basis it would be negative. If you assume we can deploy this capital at a higher return rate, something that would be reflective of our cost of capital or better then at least some math would show that it is not particularly dilutive and in fact, in some circumstances, would actually be accretive. Those are estimates you would actually need to make, obviously on your own. We have obviously considered all of this end to end in the context of the investment opportunities that we have. We think we have made the right trade-offs. As I mentioned in the early part of the call, we think the lack of transparency on our capital structure has had an impact on our trading over the last few weeks. This hopefully clarifies the capital structure issue in a pretty comprehensive way.

In terms of commercial real estate exposure, can you remind us again in terms of what your overall exposure is to that area, whether it is the overall CMBS portfolio or the real estate that you might hold directly? In terms of the hedging exposure that you talked on the CDOs, is that all to mono lines, that $10 billion?

Yes, on the commercial real estate exposure the part that we have that is held as direct loans, on page 16 of our supplement at the end of the fourth quarter it was $20.4 billion. The commercial real estate that we hold at the CMB I honestly don’t have in front of me but generally that’s held in a trading account without substantial warehousing associated with it. So again, I don’t think that position in the overall scheme of the company is a particularly large position. The $10 billion that you referred to in terms of hedged exposure is in part mono lines but not completely mono lines. That’s split among a number of different counterparties, but mono lines obviously play a key role in the total.

Your next question comes from Mike Mayo - Deutsche Bank.

Can you talk about the trade-off between pursuing growth and managing risk? As you pointed out, the credit card losses are up over 100 basis points in three months with unemployment only at 5% and mortgages getting worse. At the same time, short-term funding costs are higher over the last three months. Does that encourage you to pull back growth at all?

There are two different types of growth, Mike. I think that’s very important. There is growth because markets are growing, the growth as in emerging markets. We are seeing that in wealth management. We are seeing that in our services businesses, Latin America, it is in our International Consumer businesses. There are lots of places where the underlying demand for the products and services that we are offering are actually growing and growing in a way that reflects great returns on a risk-adjusted basis, even if some of that growth may require some capital. That’s a different concept versus trying to figure out what the growth is in some of the other businesses where you don’t have the same top line and there is no intention we have of doing anything other in those businesses than to make sure that we are there correctly on a risk-adjusted basis. Gary talked about a number of things we are doing in some of those businesses. So our focus on growth is to make sure we are squarely there where the markets are growing and where we have a big opportunity, and while focused on risk management, is purely and clearly there to make sure that we have a simple, well thought-out approach to making sure the risk-oriented businesses are tightly managed.

Specifically as it relates to U.S. credit cards, the margin was down linked quarter. Is that an area where you might want to pull back or increase pricing or neither?

Actually all of the above is happening, Mike. So we are tightening underwriting standards, as you might guess. We are evaluating the open lines of credit that exist with current customers. We are doing cross-reference work between customers where we have the mortgage position and where we hold the credit card. Obviously we are off of promotional balances essentially as we go through this fourth quarter. So this is the time, as you no doubt have read, there was a good article in the New York Times a couple days ago about this. This is no doubt a time where in the credit card business you could make some substantial missteps if you weren’t careful in watching the credit because there is some natural growth in outstandings that will take place, there is a bit of a substitution effect between home equity loans and credit card loans, and we are very aware of what those trade-offs are and this falls into the second category that Vikram just talked about. There is some growth, good growth, and there is other growth that can be dangerous if it is done without the proper kind of risk parameters around it. I think our team is very focused on these issues right now in the card business. Obviously we have taken a bit of a reserve increase in the card business in this quarter. We are very focused on what the risks are around the inherent or natural growth that’s going to happen in that business over the next year.

More generally on reengineering, last year we heard about the reengineering project and I appreciate the change in management. When might we hear about reengineering and what are your plans for restructuring headcount in 2008?

Here is the way to think about it. Last year we announced a large charge in the first quarter and 17,000 headcount reduction and a significant charge associated with it. We set aside a separate line item on the P&L to reflect that. You notice with this charge that we just took, the 4,200 heads, it flowed right into the income statement and we took it on the normal line item. I think that is reflective of how our view is going to evolve or is evolving around reengineering. This is our job now and forever. It is never going to change. Every single quarter we have to get more and more productive. That’s the only way that we free up the P&L dollars we are going to need to drive the top line growth of the business. So rather than a once and done effort, Mike, what I hear you over time is a continual stream of efforts that we are making to reduce headcounts in non-productive areas and redeploy some of that benefit in driving the top line of the business in advertising new product development, technology, that kind of thing, as well as in margin improvement. This really is more a shift in tone than anything else. And this, as both Vikram and I mentioned, represents the first installment in 2008. We are very focused on the remaining program which is an aggressive program for the remainder of 2008 and obviously we have to get positioned for what we need for 2009 by the time we are in about the middle of 2008. So this is an ongoing process where I think hopefully you will see steady improvement. I would think about it somewhat akin to what you have seen on the asset side. On the asset side we had years and years, quarter after quarter of growth. Now you have seen a bending in that growth and reduction of $176 billion in assets and GAAP assets this quarter underlining a more focused effort over time to make our assets more productive. We are going to try and apply that same kind of discipline to the way we think about expenses.

Your next question will come from the line of Meredith Whitney - Oppenheimer.

2008 run rate for share count outstanding, I’m coming up with about 900 million in additional shares from Nikko, Abu Dhabi, the capital raise today, is that in the ballpark?

We decided not to disclose exactly what the calculation is. You obviously know the total amount of the offerings that we have done, and based on the total amount you can derive what you think the proper share count is that that is going to translate into. It obviously requires a whole series of assumptions in order to get to that number and we thought it best left to those who are doing the estimates.

My second question is related to getting back to the CDO marks just in terms of the logic and the parameters that you use in analyzing that. If I presume that you didn’t take any marks prior to the third quarter and then look at what would be the marks going into this quarter -- and I know there are a lot of moving parts here -- my biggest question revolves around the mez portion because you yourself said that you didn’t expect a rebound in that market. So it seems as if your carrying value is about $0.43 on the dollar above where the strike prices are; or if there is a strike price, where the market has indicated.

Let me [now] confirm the $0.43 on the dollar. Obviously we have taken the reductions we think are appropriate. It is heavily a function of what the vintages are in the portfolio itself. So if you go to page 20 in the deck you see 48% of the mezzanine securities that we have are vintages that were before 2005 and 52% is 2006 and 2007. So it is hard to exactly make equal the positions of each of the major companies. Now one of the things that we obviously have done in our own processes is after we have taken the marks that we have taken and concluded our values we have compared those values to those who have recently announced the same types of collateral and I think at least from our perspective these appear to be pretty much in the range with others who are doing independent work on their portfolios. As I said, the key thing here is the quality of the underlying collateral that really drives the position. At the end of the day this all gets extremely complex when you start looking at what a proper sub-prime deflator is for the housing prices, what the actual geographic ownership that we have and the underlying collateral and the quality of the underlying collateral and when it was developed. As you might guess the model is very, very extensive that tries to get at what we believe the real, most appropriate answer is. The way I would think about this is it is very difficult to forecast exactly where all this is going to go. We certainly could have additional risk as we go into the first quarter and second quarter of next year. But we have tried to be thoughtful about that in terms of the total amount of capital we have raised. It is hard for anyone to say exactly where all this is headed but we have tried to think through various scenarios that go beyond the scenarios we have taken here and factor that into the amount of capital that we have put together with this step over the last couple of weeks.

One just quick follow-up on your vision of where real estate prices are going nationally. Should we just use your economist outlook on that or are you using something separate?

What we did is our economist did an average real estate price reduction for the country. That was the basic number that we started with. Then we hired an outside firm with expertise in this area to help us then customize that deflator for sub-prime. Then we took it a step further of trying to customize that deflator for the markets in which we have our individual CDO ownership. That was the thing that resulted in the assumption of between 6.5% and 7% reduction in 2008, 6.5% to 7% reduction in 2009. So we have done the best job that we think we possibly could do in terms of making this deflator specific for the ownership that we have. That’s reflected obviously in the underlying cash flows.

That matches with the loss assumptions for your owned loan portfolio?

Yes, that’s how it was created. So it ties directly to the ownership that we have.

Your next question will come from the line of Glenn Schorr - UBS.

Have you disclosed the size of what your Alt-A portfolio would be? Could you just tell us what your cume loss assumption are on both the high LTV first and high LTV second.

On the Alt-A, we have not split that out as a separate category. If it were a category we anticipated that would have been a substantial risk I would have put it on the list of risks that I stepped down through at the end of the conversation. Given the size of the position and the risk associated with it, we would not put it in the category that went on that list of other issues that I had enumerated. Then on the LTV question I’m afraid I just missed it.

What you are assuming your cume losses would be. You have basically about $50 billion between the first and second mortgages that you showed us on slide 10 that are 98% LTVs and above. Given your predictions for home price depreciation over the next two years, I would be concerned on LTVs of 90% or above. Does your assumption mean that you would be over 100% by the next two years if those keep performing. I am just curious what your cume loss assumptions are. Have the bulk of your reserves been taken in those categories?

Yes. So here is the way I think about it. First of all, the 6.5% relates to the specific markets in which we have CDO ownership and is different than where we have mortgages. Those are not necessarily exactly the same. We have to think about those as two separate valuation excises. As I mentioned on the call, most of the losses that we are seeing relate to one or two parameters. In the first mortgage portfolio, it has to do with the FICO scores of 620 or lower and that is over $20 billion of the portfolio. In the second mortgage portfolio most of the losses have to do with where we have LTVs that are greater than 90. The loss experience is different when you are talking about prime mortgages or sub-prime mortgages. Within that group, obviously we have seen most of the losses. So if you look on the little chart that we used to describe the performance over time of those first and second portfolios, you see what the loss rates are for those higher FICO scores. So in second mortgages, if you look at the 90 days past due, it’s about two times the rate of those mortgages that have LTVs that are better than 90%. On the FICO score, where the FICO score on first mortgages is below 620, it is roughly three times the loss rate. So I don’t know if that helps you calibrate, but obviously we come to the same conclusion you do that this is a focused problem in a very specific set of loans that had certain origination characteristics and that had these FICO scores or these loan-to-value. As we have created the reserve we have customized the reserve, we are thinking about the losses associated with those categories. Based on that, we concluded we already had losses inherent in the portfolio that will manifest themselves over the next while that needed to be reserved for properly today. That’s the way we have thought about it.

I think people would be interested in follow-up, I know I am. On the Alt-A side, the good news is it is not in your substantial risk bucket. Is that a function of size or you just don’t think that area is going to have the same consideration we have seen in other credit buckets?

It is a function of size.

On the international side we have not seen big reserves building there. As a matter of fact, in the card business loss ratios have fallen. The question is, how realistic is it for us to assume whether it be consumer or corporate for the international markets, that this may be coupled?

I think obviously that’s something that you would have to look at in order be comfortable with what the answer is. If you look on page 18 of the supplement, as you rightly say, our actual loss rates have remained actually dead flat and actually improved a little bit over the last little while. That said, I don’t think anyone here is complacent about the potential risks that exist outside the U.S. We are very focused in managing our exposures, particularly in Mexico, in the U.K., in India and Australia. We are very focused on those four markets in particular and doing the same kinds of things that I had mentioned earlier in terms of looking at credit very carefully and ensuring that we are managing line sizes appropriately; looking at our underwriting standards. Those kind of action steps are being taken which may in fact have the impact of slowing loan growth somewhat outside the United States as we go into 2008 or complete the rest of this year. So we anticipate that there is still some risk of loss out there in the international markets, even though in the underlying numbers today you would be hard to find it.

Your next question comes from Richard Bove - Punk Ziegel.

I’m wondering if you can go back into the calculations under the discounted cash flow model and the marks. I’m wondering what the interest rate assumptions were, base rates to come up with the interest rate assumptions or the discounting mechanisms and whether you are assuming that interest rate is going to move higher or lower because presumably if it moves lower there will be some write up of the things that you have just written down.

It is a very good question, Dick. The way we have looked at this is this is a little bit complicated, but we have looked at the downgrades that have taken place on the CDOs broadly in the universe of CDOs. Where we, for example, had a CDO that might have been rated AAA or AA and in the universe of AA and AAA have generally been downgraded we have assumed, even though if our particular CDO might not have been downgraded, that weren’t reviewed, it would be held at a lower credit rating. So it might be held at instead of a AA a BBB or something like that. We then have selected the analogous CLO discount rate at the bid end of the spectrum to be the underlying factor at which we discounted the cash flows. The thinking here being that it is a structured product that has similar kinds of characteristics and would be a good proxy for what the proper discount rate would be. As CDOs have gotten downgraded, that has contributed to the increase in our discount rate and obviously to the increase in the total amount of loss that we have taken. Frankly, no one around here has had a discussion about whether or not that might go the other direction because we have been so focused on ensuring we did the right thing with the valuation this quarter. You do raise a very important question though and I hope this is clear to everyone that there is always a difference between the accounting valuation and the true cash flows associated with these products. So we have had very small actual cash flow impairment on the super senior structures. It doesn’t mean that the underlying securities have not been impaired but because of the retiering of the cash flows the actual cash flows have remained intact all during this whole process. Now obviously that is unlikely to stay completely true over the life of these products, but it does raise an interesting question about what the eventual cash flow recovery will be of these products relative to the cash flow model valuation that we have done right now. We’ll all know the answer to this three years from today but it certainly is at a point today where the proper accounting valuation is different than the current ongoing cash flow experienced by the more senior structures that we hold in the CDOs.

So it is not inappropriate to believe that if either housing prices don’t fall as much as expected or there is a rating upgrade based upon actual cash flows or interest rates were to go lower, that there will be a markup which could be relatively substantial in size of the things that were marked down today?

That’s a good list of the considerations that one would think through. But to be perfectly honest, we just haven’t focus on that at all. But those are some of the considerations that would go into thinking about the valuation.

The second question would relate to the cash flow indication that you just mentioned and that is that to my knowledge, this $26 billion that has been taken either in writedowns or loan loss provision are all non-cash charges. I think I heard it said that the equity raises will put the relevant ratios above what they were targeted to be, let’s say three months ago. Given the fact that there is no significant cash charge here, given the fact that the company is going to wind up with perhaps some excess capital, I find it difficult to understand why you would cut the dividend? In addition, since by cutting the dividend you have knocked at least today $5 billion off the value of the stock, I’m wondering where does the shareholder show up in this whole calculation? He has lost 40% of his dividend. His stock price is down $5 billion in value. From what I think I heard you say, there is no prospect of the dividend going back up again. There is going to be share repurchases as opposed to replacing the dividend. So how does the stockholder benefit by this?

Well let me talk first of all, Dick, about the way we thought about the dividend and just give you a little bit more color around that. If you took a normalized situation, so if you go back over the last few years and we have had a $20 billion earnings level and you assumed a 55% payout ratio or something like that. That gave you 45% of that capital essentially to allow the business to grow and to take care of any shocks that might happen in the system. Assuming that we ran the company right at the targeted ratios that we have, right at 6.5% in TCE and 7.5% in terms of our tier one ratio. That’s basically the assumption that you made. That essentially -- even under that scenario -- gives you relatively little capital to rebuild your capital in the event of a shock scenario and obviously one of the things that I have to do as part of my job, think about all the time, is what’s the implication to the company of having a shock scenario happen? We have just experienced one of those. We have just been through that and we have obviously taken the charge associated with that in this quarter. That kind of an event could happen at some point down the road. If it did happen at some point down the road, the proper way I think to manage this would be to do one of two things: either to hold significant additional excess capital, so even in the event of a shock you are able to recover relatively quickly; or alternatively, to reduce the payout ratio that would reflect what you believe the growth prospects of the business and the inherent exposures of the company to be. Those are…

Final thought on that. I think I heard a number of times it said that the dividend was being sized relative to the growth prospects of the company. So if I assume a 40% payout ratio and a dividend of 28%, presumably the company is setting out a 320, if you will, ability to show earnings over some timeframe which would be substantially lower than let’s say the $1.25 inherent in the second quarter numbers. Is the company in fact saying that its earning capacity is substantially less and because its earning capacity is substantial less, shareholders should take a $5 billion one-day hit in their holdings and a 40% reduction in their dividends?

Dick, obviously we don’t give forecasts for where we think the future is going to go. We also carefully did not talk about a payout ratio here. We didn’t think about it necessarily in terms of a specific payout ratio. We thought about it in terms of the capital formation and our ability to respond relatively quickly to a stress scenario in the environment. Mathematically it calculates into a payout ratio, but that’s not the way we derived it.

Your final question comes from David Hilder - Bear Stearns.

Just one question on the timing of the headcount reduction. Have those actually taken place?

They are in process right now, David.

So you should see some benefit in the first quarter expenses?

The answer is yes.

Secondly, if you could provide any finer detail on what would qualify as non-core assets from divestiture or balance sheet reductions in the near term?

I think the ones that we have most recently done give you an idea of that. So we had sold down a portion of our [Redi] card ownership which is a merchant servicing business that we had part ownership in Brazil. That’s one example of it. We sold the Simplex Investment Advisors which was a real estate investment advisory firm in Japan that we just sold our percentage of the ownership in. Frankly, if you flip through the supplement you will probably come up with a list that is pretty close to the list that we have of those things that are not directly related to the kinds of things that we do that would be on our short-term list of actions that we would take to supplement the cash flow generation or the capital generation that we have just done.

Thanks, everyone for joining us today. We realize this has been a long call. Any other questions you have please give us a call at investor relations and we would be happy to help with those. Otherwise, operator, this concludes this call.