Citigroup Inc.

Citigroup evaluates the payment/performance risk of the credit derivatives forwhich it stands as a protection seller based on the credit rating assigned to theunderlying referenced credit. Where external ratings by nationally recognizedstatistical rating organizations (such as Moody’s and S&P) are used, investmentgrade ratings are considered to be Baa/BBB or above, while anything belowis considered non-investment grade. The Citigroup internal ratings are inline with the related external credit rating system. On certain underlyingreference credits, mainly related to over-the-counter credit derivatives,ratings are not available, and these are included in the not-rated category.Credit derivatives written on an underlying non-investment grade referencecredit represent greater payment risk to the Company. The non-investmentgrade category in the table above primarily includes credit derivatives wherethe underlying referenced entity has been downgraded subsequent to theinception of the derivative.The maximum potential amount of future payments under creditderivative contracts presented in the table above is based on the notionalvalue of the derivatives. The Company believes that the maximum potentialamount of future payments for credit protection sold is not representativeof the actual loss exposure based on historical experience. This amounthas not been reduced by the Company’s rights to the underlying assets andthe related cash flows. In accordance with most credit derivative contracts,should a credit event (or settlement trigger) occur, the Company is usuallyliable for the difference between the protection sold and the recourse it holdsin the value of the underlying assets. Thus, if the reference entity defaults,Citi will generally have a right to collect on the underlying reference creditand any related cash flows, while being liable for the full notional amountof credit protection sold to the buyer. Furthermore, this maximum potentialamount of future payments for credit protection sold has not been reducedfor any cash collateral paid to a given counterparty as such payments wouldbe calculated after netting all derivative exposures, including any creditderivatives with that counterparty in accordance with a related masternetting agreement. Due to such netting processes, determining the amount ofcollateral that corresponds to credit derivative exposures only is not possible.The Company actively monitors open credit risk exposures, and managesthis exposure by using a variety of strategies including purchased creditderivatives, cash collateral or direct holdings of the referenced assets. Thisrisk mitigation activity is not captured in the table above.Credit-Risk-Related Contingent Features in DerivativesCertain derivative instruments contain provisions that require the Companyto either post additional collateral or immediately settle any outstandingliability balances upon the occurrence of a specified credit-risk-relatedevent. These events, which are defined by the existing derivative contracts,are primarily downgrades in the credit ratings of the Company and itsaffiliates. The fair value of all derivative instruments with credit-risk-relatedcontingent features that are in a liability position at December 31, 2010 andDecember 31, 2009 is $25 billion and $17 billion, respectively. The Companyhas posted $18 billion and $11 billion as collateral for this exposure inthe normal course of business as of December 31, 2010 and December 31,2009, respectively. Each downgrade would trigger additional collateralrequirements for the Company and its affiliates. In the event that each legalentity was downgraded a single notch as of December 31, 2010, the Companywould be required to post additional collateral of $2.1 billion.258