Citigroup Inc.

The range of credit derivatives sold includes credit default swaps, totalreturn swaps and credit options.A credit default swap is a contract in which, for a fee, a protection selleragrees to reimburse a protection buyer for any losses that occur due toa credit event on a reference entity. If there is no credit default event orsettlement trigger, as defined by the specific derivative contract, then theprotection seller makes no payments to the protection buyer and receives onlythe contractually specified fee. However, if a credit event occurs as defined inthe specific derivative contract sold, the protection seller will be required tomake a payment to the protection buyer.A total return swap transfers the total economic performance of areference asset, which includes all associated cash flows, as well as capitalappreciation or depreciation. The protection buyer receives a floating rateof interest and any depreciation on the reference asset from the protectionseller and, in return, the protection seller receives the cash flows associatedwith the reference asset plus any appreciation. Thus, according to the totalreturn swap agreement, the protection seller will be obligated to make apayment anytime the floating interest rate payment and any depreciationof the reference asset exceed the cash flows associated with the underlyingasset. A total return swap may terminate upon a default of the reference assetsubject to the provisions of the related total return swap agreement betweenthe protection seller and the protection buyer.A credit option is a credit derivative that allows investors to trade or hedgechanges in the credit quality of the reference asset. For example, in a creditspread option, the option writer assumes the obligation to purchase or sell thereference asset at a specified “strike” spread level. The option purchaser buysthe right to sell the reference asset to, or purchase it from, the option writer atthe strike spread level. The payments on credit spread options depend eitheron a particular credit spread or the price of the underlying credit-sensitiveasset. The options usually terminate if the underlying assets default.A credit-linked note is a form of credit derivative structured as a debtsecurity with an embedded credit default swap. The purchaser of the notewrites credit protection to the issuer, and receives a return which will benegatively affected by credit events on the underlying reference credit. Ifthe reference entity defaults, the purchaser of the credit-linked note mayassume the long position in the debt security and any future cash flowsfrom it, but will lose the amount paid to the issuer of the credit-linked note.Thus the maximum amount of the exposure is the carrying amount of thecredit-linked note. As of December 31, 2010 and December 31, 2009, theamount of credit-linked notes held by the Company in trading inventorywas immaterial.The following tables summarize the key characteristics of the Company’scredit derivative portfolio as protection seller as of December 31, 2010 andDecember 31, 2009:In millions of dollars as ofDecember 31, 2010Maximum potentialamount offuture paymentsFairvaluepayable (1)By industry/counterpartyBank $ 784,080 $20,718Broker-dealer 312,131 10,232Non-financial 1,463 54Insurance and other financial institutions 125,442 4,954Total by industry/counterparty $1,223,116 $35,958By instrumentCredit default swaps and options $1,221,211 $35,800Total return swaps and other 1,905 158Total by instrument $1,223,116 $35,958By ratingInvestment grade $ 532,283 $ 7,385Non-investment grade 372,579 15,636Not rated 318,254 12,937Total by rating $1,223,116 $35,958By maturityWithin 1 year $ 162,075 $ 353From 1 to 5 years 853,808 16,524After 5 years 207,233 19,081Total by maturity $1,223,116 $35,958(1) In addition, fair value amounts receivable under credit derivatives sold were $22,638 million.In millions of dollars as ofDecember 31, 2009Maximum potentialamount offuture paymentsFairvaluepayable (1)By industry/counterpartyBank $ 807,484 $34,666Broker-dealer 340,949 16,309Monoline 33 —Non-financial 623 262Insurance and other financial institutions 64,964 7,025Total by industry/counterparty $1,214,053 $58,262By instrumentCredit default swaps and options $1,213,208 $57,987Total return swaps and other 845 275Total by instrument $1,214,053 $58,262By ratingInvestment grade $ 576,930 $ 9,632Non-investment grade 339,920 28,664Not rated 297,203 19,966Total by rating $1,214,053 $58,262By maturityWithin 1 year $ 165,056 $ 873From 1 to 5 years 806,143 30,181After 5 years 242,854 27,208Total by maturity $1,214,053 $58,262(1) In addition, fair value amounts receivable under credit derivatives sold were $24,234 million.257