Citigroup Inc.

Citigroup remains subject to restrictions on its ability topay common stock dividends and to redeem or repurchaseCitigroup equity or trust preferred securities for so longas its trust preferred securities continue to be held by theU.S government.Pursuant to its agreements with certain U.S. government entities, dated June 9,2009, executed in connection with Citi’s exchange offers consummated inJuly and September 2009, Citigroup remains subject to dividend and sharerepurchase restrictions for so long as the U.S. government continues to holdany Citigroup trust preferred securities acquired in connection with theexchange offers. These restrictions, subject to certain exceptions, generallyprohibit Citigroup from paying regular cash dividends in excess of $0.01 pershare of common stock per quarter or from redeeming or repurchasing anyCitigroup equity securities or trust preferred securities. As of December 31, 2010,approximately $3.025 billion of trust preferred securities issued to the FDICremains outstanding (of which approximately $800 million is being held forthe benefit of the U.S. Treasury). In addition, even if Citigroup were no longercontractually bound by the dividend and share purchase restrictions of theseagreements, any decision by Citigroup to pay common stock dividends orinitiate a share repurchase will be subject to further regulatory approval.Citi could be harmed competitively if it is unable to hireor retain qualified employees as a result of regulatoryuncertainty regarding compensation practices or otherwise.Citigroup’s performance and competitive standing is heavily dependent onthe talents and efforts of the highly skilled individuals that it is able to attractand retain, including without limitation in its S&B business. Competitionfor such individuals within the financial services industry has been, and willlikely continue to be, intense.Compensation is a key element of attracting and retaining highlyqualified employees. Banking regulators in the U.S., European Union andelsewhere are in the process of developing principles, regulations and otherguidance governing what are deemed to be sound compensation practicesand policies, and the outcome of these processes is uncertain. In addition,compensation for certain employees of financial institutions, such asbankers, continues to be a legislative focus both in Europe and in the U.S.Changes required to be made to the compensation policies andpractices of Citigroup, or those of the banking industry generally, mayhinder Citi’s ability to compete in or manage its businesses effectively, toexpand into or maintain its presence in certain businesses and regions,or to remain competitive in offering new financial products and services.This is particularly the case in emerging markets, where Citigroup is oftencompeting for qualified employees with other financial institutions that seekto expand in these markets. Moreover, new disclosure requirements mayresult from the worldwide regulatory processes described above. If this wereto occur, Citi could be required to make additional disclosures relating to thecompensation of its employees in a manner that creates competitive harmthrough the disclosure of previously confidential information, or throughthe direct or indirect new disclosures of the identity of certain employeesand their compensation. Any such additional public disclosure of employeecompensation, or any future legislation or regulation that requires Citigroupto restrict or modify its compensation policies, could hurt Citi’s ability to hire,retain and motivate its key employees and thus harm it competitively.Citigroup is subject to a significant number of legal andregulatory proceedings that are often highly complex, slowto develop and are thus difficult to predict or estimate.At any given time, Citigroup is defending a significant number of legaland regulatory proceedings, and the volume of claims and the amount ofdamages and penalties claimed in litigation, arbitration and regulatoryproceedings against financial institutions generally remain high.Proceedings brought against Citi may result in judgments, settlements, fines,penalties, injunctions, business improvement orders, or other results adverseto it, which could materially and negatively affect Citigroup’s businesses,financial condition or results of operations, require material changes inCiti’s operations, or cause Citigroup reputational harm. Moreover, the manylarge claims asserted against Citi are highly complex and slow to develop,and they may involve novel or untested legal theories. The outcome of suchproceedings may thus be difficult to predict or estimate until late in theproceedings, which may last several years. Although Citigroup establishesaccruals for its litigation and regulatory matters according to accountingrequirements, the amount of loss ultimately incurred in relation to thosematters may be substantially higher or lower than the amounts accrued.In addition, while Citi seeks to prevent and detect employee misconduct,such as fraud, employee misconduct is not always possible to deter orprevent, and the extensive precautions Citigroup takes to prevent and detectthis activity may not be effective in all cases, which could subject Citi toadditional liability. Moreover, the so-called “whistle-blower” provisions ofthe Financial Reform Act, which apply to all corporations and other entitiesand persons, provide substantial financial incentives for persons to reportalleged violations of law to the SEC and the Commodity Futures TradingCommission. These provisions could increase the number of claims thatCitigroup will have to investigate or against which Citigroup will have todefend itself, and may otherwise further increase Citigroup’s legal liabilities.For additional information relating to Citigroup’s potential exposurerelating to legal and regulatory matters, see Note 29 to the ConsolidatedFinancial Statements.The Financial Accounting Standards Board (FASB) iscurrently reviewing or proposing changes to several keyfinancial accounting and reporting standards utilized byCiti which, if adopted as proposed, could have a materialimpact on how Citigroup records and reports its financialcondition and results of operations.The FASB is currently reviewing or proposing changes to several of thefinancial accounting and reporting standards that govern key aspects ofCitigroup’s financial statements. While the outcome of these reviews andproposed changes is uncertain and difficult to predict, certain of thesechanges could have a material impact on how Citigroup records andreports its financial condition and results of operations, and could hinder78