Citigroup Inc.

Japan Consumer FinanceCitigroup continues to actively monitor a number of matters involving itsJapan Consumer Finance business, including customer refund claims anddefaults, as well as financial and legislative, regulatory, judicial and otherpolitical developments, relating to the charging of gray zone interest. Grayzone interest represents interest at rates that are legal but for which claimsmay not be enforceable. Although Citi determined in 2008 to exit its JapanConsumer Finance business and has been liquidating its portfolio andotherwise winding down the business, this business has incurred, and willcontinue to face, net credit losses and refunds, due in part to legislative,regulatory and judicial actions taken in recent years. These actions may alsoreduce credit availability and increase potential claims and losses relating togray zone interest.In September 2010, one of Japan’s largest consumer finance companies(Takefuji) declared bankruptcy and is currently in the process ofrestructuring, with court protection and assistance. Citi believes this actionreflects the financial distress that Japan's top consumer finance lenders arefacing as they continue to deal with liabilities for gray zone interest refundclaims. During 2010, LCL recorded a charge of approximately $325 million(pretax) to increase its reserves related to customer refunds in the JapanConsumer Finance business.Citi continues to monitor and evaluate these developments and thepotential impact to both currently and previously outstanding loans inthis business, and its reserves related thereto. However, the trend in thetype, number and amount of claims, and the potential full amount oflosses and their impact on Citi, requires evaluation in a potentially volatileenvironment, is subject to significant uncertainties and continues to bedifficult to predict.49