These banks have faced rising delinquencies yet have continued towell outperform Citi's U

These banks have faced rising delinquencies yet have continued towell outperform Citi's U.S operations. The Global Branded Cards business likelyfaces the greatest challenge in 2009, given sharply rising delinquencies andcharge-offs. The global institutional bank will provide a full range of corporate andinvestment banking services with a focus on servicing multi-nationalcorporations among other large institutions. This business has so far been highly resilient to thefinancial crisis, generating earnings of $3.0 billion in 2008.

The risk profile of the global institutional bank is expected to be decreasedsubstantially, including sharp reductions in proprietary trading activities andhigher risk lending exposures. Many existing proprietary trading positions andproblem loans will be transferred to Citi Holdings for management anddisposition. Going forward, an important part of Fitch's analysis will includeensuring proprietary trading activities are meaningfully reduced and carefullymanaged. However, similar strategies are being executed by many of Citi's peers,thus competition is expected to remain quite high amongst the largest globalfinancial institutions. Fitch believes that collective risks will again expandonce the environment returns to a more positive economic outlook.

Fitch willevaluate growth expectations and expansionary efforts as well as management'sability to balance growth and market share against a healthy level of capitaland appropriate risk limitations. Given that many problem assets are being transferred to Citi Holdings, the newCiticorp will benefit from sharply reduced asset quality problems. However, aninflow of new problems is likely given the current global economic environment.If the new Citicorp is able to generate profits and contain its asset qualityproblems, it may be able to tap market capital at some point. This could helprefinance the massive level of government preferred stock at some juncture.Management estimated that the new Citicorp would have generated $10 billion ofpro forma earnings in 2008 but this estimate excludes many of the problem assetsthat have resulted in losses over the past year. The assets of the new Citicorpare expected to be funded approximately 65 by deposits versus the currentdepository funding level of 40 for Citigroup.