Citigroup Inc.

In addition, Citibank (South Dakota), N.A. had provided liquidity to athird-party, non-consolidated multi-seller commercial paper conduit, whichis not a VIE. The commercial paper conduit had acquired notes issued bythe Omni Trust. The liquidity commitment to the third-party conduit was$2.5 billion at December 31, 2009, of which none was drawn.During 2009, all three of Citigroup’s primary credit card securitizationtrusts—Master Trust, Omni Trust, and Broadway Trust—had bonds placedon ratings watch with negative implications by rating agencies. As a resultof the ratings watch status, certain actions were taken by Citi with respectto each of the trusts. In general, the actions subordinated certain seniorinterests in the trust assets that were retained by Citi, which effectively placedthese interests below investor interests in terms of priority of payment.As a result of these actions, based on the applicable regulatory capitalrules, Citigroup began including the sold assets for all three of the credit cardsecuritization trusts in its risk-weighted assets for purposes of calculating itsrisk-based capital ratios during 2009. The increase in risk-weighted assetsoccurred in the quarter during 2009 in which the respective actions tookplace. The effect of these changes increased Citigroup’s risk-weighted assetsby approximately $82 billion, and decreased Citigroup’s Tier 1 Capital ratioby approximately 100 basis points as of March 31, 2009, with respect toeach of the master and Omni Trusts. The inclusion of the Broadway Trustincreased Citigroup’s risk-weighted assets by an additional approximate$900 million at June 30, 2009. With the consolidation of the trusts, beginningin 2010 the credit card receivables that had previously been considered soldunder SFAS 140 are now included in the Consolidated Balance Sheet andaccordingly these assets continue to be included in Citigroup’s risk-weightedassets. All bond ratings for each of the trusts have been affirmed by the ratingagencies and no downgrades have occurred since December 31, 2010.Mortgage SecuritizationsThe Company provides a wide range of mortgage loan products to a diversecustomer base.Once originated, the Company often securitizes these loans through theuse of SPEs, which prior to 2010 were QSPEs. These SPEs are funded throughthe issuance of trust certificates backed solely by the transferred assets. Thesecertificates have the same average life as the transferred assets. In addition toproviding a source of liquidity and less expensive funding, securitizing theseassets also reduces the Company’s credit exposure to the borrowers. Thesemortgage loan securitizations are primarily non-recourse, thereby effectivelytransferring the risk of future credit losses to the purchasers of the securitiesissued by the trust. However, the Company’s Consumer business generallyretains the servicing rights and in certain instances retains investmentsecurities, interest-only strips and residual interests in future cash flows fromthe trusts and also provides servicing for a limited number of Securities andBanking securitizations. Securities and Banking and Special Asset Pooldo not retain servicing for their mortgage securitizations.The Company securitizes mortgage loans generally through either agovernment-sponsored agency, such as Ginnie Mae, FNMA or Freddie Mac(U.S. agency-sponsored mortgages), or private label (non-agency-sponsoredmortgages) securitization. The Company is not the primary beneficiary ofits U.S. agency-sponsored mortgage securitizations, because Citigroup doesnot have the power to direct the activities of the SPE that most significantlyimpact the entity’s economic performance. Therefore, Citi does notconsolidate these U.S. agency-sponsored mortgage securitizations. In certaininstances, the Company has (1) the power to direct the activities and (2) theobligation to either absorb losses or right to receive benefits that could bepotentially significant to its non-agency-sponsored mortgage securitizationsand, therefore, is the primary beneficiary and consolidates the SPE.Mortgage Securitizations—CiticorpThe following tables summarize selected cash flow information related to mortgage securitizations for the years ended December 31, 2010, 2009 and 2008:In billions of dollarsU.S. agencysponsoredmortgagesNon-agencysponsoredmortgages2010 2009 2008Agency- andnon-agencysponsoredmortgagesAgency- andnon-agencysponsoredmortgagesProceeds from new securitizations $63.0 $2.1 $15.7 $6.3Contractual servicing fees received 0.5 — — —Cash flows received on retained interests and other net cash flows 0.1 — 0.1 0.2Gains (losses) recognized on the securitization of U.S. agency-sponsoredmortgages during 2010 were $(2) million. For the year ended December 31,2010, gains (losses) recognized on the securitization of non-agencysponsoredmortgages were $(3) million.Agency and non-agency mortgage securitization gains (losses) forthe years ended December 31, 2009 and 2008 were $18 million and$(15) million, respectively.240