Citigroup Inc.

Citigroup Inc.

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Citigroup Inc. (C) Q4 2009 Earnings Call Transcript

Published at 2010-01-19 16:27:23
Executives
John Andrews – IR Vikram Pandit – CEO John Gerspach - CFO
Analysts
Guy Mozkowski - BofA Merrill Lynch Glenn Schorr – UBS Matthew O’Connor - Deutsche Bank Securities Betsy Graseck - Morgan Stanley Michael Mayo – CLSA James Mitchell – Buckingham Research John McDonald – Sanford Bernstein Edward Najarian - ISI Group Chris Kotowski - Oppenheimer & Co. Moshe Orenbuch - Credit Suisse Carole Berger – Luna Analytic Securities
Operator
Hello, and welcome to Citi’s fourth quarter and full year 2009 earnings review with Chief Executive Officer, Vikram Pandit, and Chief Financial Officer, John Gerspach. Today’s call will be hosted by John Andrews, Head of Citi Investor Relations. (Operator Instructions) Mr. Andrews, you may begin.
John Andrews
Good morning to everybody and thank you for joining us this morning. On our call today, our CEO, Vikram Pandit, will speak first followed by John Gerspach, our CFO, will take you through the earnings presentation, which is available on our website for those of you who don’t have it yet, www.citigroup.com. Afterwards, we will be happy to take your questions. Before we get started, I would like to remind you that today’s presentation may contain forward-looking statements. Citi’s financial results may differ materially from these statements, so please refer to our SEC filings for a description of the factors that could cause our actual results to differ from expectations. With that said, let me turn it over to Vikram.
Vikram Pandit
John, thank you very much and thank you all for joining us this morning. We will take you through the fourth quarter results today. We’ll put those in context with the entire 2009 and then we’ll also touch on 2010. Let me start by saying that we made enormous progress in 2009. We build financial strength. Capital liquidity, and reserves are all very strong. We reduced the size of the company substantially. We focused the company on a clear strategy based on our distinctive strengths. We created Citicorp to execute on that strategy and created Citi Holdings to be rationalized. We put the right management and leadership in place and have restructured many of our businesses. We have completely overhauled risk management. And we repaid the government. As a result of all of these steps Citigroup had managed revenues of $91 billion for the entire year. Costs of $48 billion for the year reflecting a reduction of $13 billion from the peak run rate in fourth quarter 2007. Headcount is down from 375,000 at the peak in 2008 to 265,000 at the end of 2009 and assets are down $502 billion from their peak in 2008. Citi Holdings reduced its assets by $168 billion in 2009 and by $351 billion over the last two years and we completed 23 divestitures. In Citicorp, we had record securities and banking revenues in 2009. Record results for GTS in 2009. Increase in deposits of $62 billion in 2009. So we enter 2010 with a very strong foundation as a result of the work done in 2009 with a strong franchise and powerful operating businesses in Citicorp. Some credit fundamentals appear to be stabilizing particularly internationally but US consumer credit remains an issue. We had our second consecutive quarter of declining net credit losses and non-accrual loans declined slightly this quarter for the first time in the cycle. I’m going to have John take you through the numbers this quarter and I’ll be back right after that.
John Gerspach
Thank you Vikram and good morning everyone. Before we go into the quarter in more detail, I want to describe a few significant items which our reflected in our fourth quarter results. First we booked an $8 billion pre-tax loss on debt extinguishment related to the repayment of $20 billion of TARP trust preferred securities. Second, we recorded a $2.1 billion pre-tax loss in connection with exiting the loss sharing agreement with the US government. Third, we had a negative CVA of $1.8 billion consisting of two items; a $949 million charge principally in securities and banking driven by tightening in our own credit spreads in the fourth quarter, and, an $840 million pre-tax adjustment to our CVA balance reflecting a correction to the calculation of CVA for our fair value option debt. Now, turning to our quarterly results on slide three, in the fourth quarter we reported revenues of $5.4 billion. Excluding the losses related to TARP repayment and the exit from the loss sharing agreement, our revenues would have been $15.5 billion. Operating expenses were $12.3 billion, up modestly from third quarter levels, mainly due to higher repositioning charges and FX impacts. Provisions for credit losses, claims, and benefits of $8.2 billion were down 10% over last quarter, reflecting lower net credit losses and lower reserve build. We reported a net loss of $7.6 billion in the fourth quarter. The loss per share was $0.33 based on average shares outstanding of 23.4 billion. End of period shares totaled 28.5 billion. Excluding the losses related to TARP repayment and the exit from the loss sharing agreement our net loss would have been $1.4 billion or $0.06 per share. On slide four we show the results for Citicorp and Citi Holdings. I’d like to point out a few trends before we discuss the businesses in more detail. Citicorp remained profitable in the fourth quarter as expense headwinds from repositioning charges, incremental investment spending, and FX impacts were offset by improving cost of credit. We also grew both assets and deposits quarter over quarter and key revenue drivers showed positive momentum. In Citi Holdings the focus is on reducing assets in an economically rational manner. Assets declined by $70 billion to $547 billion this quarter. We kept operating costs fairly stable as reductions were offset this quarter by higher collections expense in US mortgages and repositioning costs. And importantly credit costs while still high declined again in the quarter. Now let me focus on the businesses within Citicorp. Slide five shows results for our North America regional consumer banking business. On a managed basis revenues were $3.4 billion in the fourth quarter, down 5% sequentially. Retail banking revenues of $1 billion were down 7% quarter over quarter. We grew our average deposits by 5% sequentially while lowering the average customer rate. However spreads in the business were compressed as our corporate treasury reduced the rate paid for deposits raised. Average managed loans were roughly flat versus the third quarter. Managed card revenues were $2.4 billion, down 4% versus the prior quarter. The sequential decline in revenues was primarily driven by lower interest rate revenue due to CARD Act implementation, a portion of which was mitigated by pricing actions. Operating expenses were stable at $1.3 billion. Managed net credit losses declined by 6% this quarter to $2 billion. However credit costs were up on a GAAP basis due to the timing of securitization activity. Slide six shows the results of the international regional consumer banking businesses. In summary international revenues of $4.1 billion were up 4% sequentially driven by Latin America and Asia. Average deposits and total average loans each grew by 4% and card purchase sales were up 11%. International operating expenses were $2.5 billion, up 12% over the prior quarter driven by higher expenses in Latin America and Asia. Excluding FX expenses were up 9% driven by higher marketing and investment spending across all major markets in Asia and Latin America and increases in repositioning charges and other reserves. We increased our marketing and investment spending in Asia and Latin America as these regions continued to show signs of economic recovery. For example, in Asia we invested in new customer acquisitions in the emerging of [inaudible] segment and card usage promotion, and in Latin America we invested in card account acquisitions with a focus on higher quality new accounts consistent with the repositioning of our portfolio. International credit costs were $1.2 billion in the fourth quarter, down 19% sequentially. Credit costs declined across all regions this quarter with the most significant improvement in Latin America driven by Mexico cards. Turning to securities and banking on slide seven, excluding CVA, revenues were $5.4 billion, down $1.2 billion or 19% versus the third quarter. The sequential decrease is primarily attributable to lower revenues in fixed income and equity capital markets. Excluding CVA fixed income market revenues were down 36% to $3 billion, driven by lower market volumes across all major products combined with lower volatility which reduced our trading opportunities. While we saw a broad based decline in market activity our emerging markets rates and currency businesses were down significantly less than the other products. Equity market revenue excluding CVA was down 45% to $732 million. Weaker market volumes and lower volatility effected trading opportunities across the business. Investment banking revenues were $1.5 billion, up 25% quarter over quarter driven by strength in advisory revenues and equity underwriting offset by lower debt issuance volume. For the full year 2009 Citigroup achieved the number three position in completed global M&A. In investment grade debt we were the number one underwriter in the US and achieved a number two position globally. Private bank revenues excluding CVA were $564 million in the quarter, roughly flat to last quarter’s level and in lending, we saw a $502 million improvement reflecting lower mark-to-market losses on hedging activity. Operating expenses were essentially at $3.5 billion in the fourth quarter. And credit costs were down significantly by 86% to $63 million resulting from both a decline in net credit losses and a loan loss reserve release. On a full year basis revenues excluding CVA were $29.4 billion, up 23% over the prior year. Slide eight shows the quarterly results of our transaction services business. Transaction services revenues were $2.5 billion, up slightly from the third quarter as growth in securities and fund services was offset by a modest decline in treasury and trade solutions. Small sequential declines in North America and EMEA revenues were more than offset by growth in Asia and Latin America. While the business continues to face the pressures of a low interest rate environment key indicators remain positive. Transaction volumes were up across the business and average deposits grew by 7% to $335 billion, with sequential gains in all regions. Expenses were up 6% in the quarter to $1.2 billion driven primarily by technology investment spending, volume related expenses, repositioning costs, and the impact of FX. For the full year 2009 transaction services earned net income of $3.7 billion, up 12% over the prior year. Slide nine shows asset trends in Citi Holdings. We continued to successfully reduce assets in Citi Holdings which have declined by $351 billion from peak levels in early 2008. In the fourth quarter we reduced assets by $70 billion to $547 billion, our largest single quarterly decline driven by the divestiture of Nikko Cordial and Nikko Asset Management, which reduced assets by $25 billion, additional business divestitures, and asset sales of $15 billion, $24 billion of organic runoff, and $6 billion of net credit losses. At the end of the quarter roughly two thirds of the remaining assets were in local consumer lending, about half of which are US mortgages. About 28% of Citi Holdings’ assets were in the special asset pool, and brokerage and asset management was the smallest segment including our interest in the Morgan Stanley Smith Barney joint venture. I’d like to take a moment now to discuss asset transfers from Citi Holdings into Citicorp that will occur in the first quarter of 2010. With our exit from the loss sharing agreement we conducted a broader review of what assets and holdings are strategically important to Citicorp. As a result of this analysis we expect to move approximately $61 billion of assets from Citi Holdings into Citicorp in the first quarter. We will restate prior periods to reflect this change and we will distribute restated financials and an updated supplement prior to first quarter earnings. The assets consist primarily of approximately $34 billion of US mortgages, which will be transferred to our North America regional consumer bank, roughly $19 billion of commercial and corporate loans and securities related to core Citicorp clients, and approximately $5 billion of assets related to our Mexico asset management business. We provided more detail on the asset transfer in the appendix on slide 27. Turning to brokerage and asset management on slide 10, revenues were down 37% sequentially to $425 million in the fourth quarter primarily driven by the absence of the gain on the sale of managed futures in the third quarter. Reflecting the Nikko divestitures, assets are down to $35 billion. Slide 11 shows the local consumer lending segment. On a managed basis local consumer lending generated $4.9 billion of revenues in the fourth quarter, down 13% sequentially driven by a declining average loan balance, and continued spread compression. Average managed loans were down 4% in the quarter. Operating expenses grew by 3% sequentially to $2.7 billion driven by higher collections expense in US mortgages and repositioning costs. Total credit costs were roughly flat quarter over quarter at $5.8 billion. Net credit losses declined by 6% to $4.6 billion on a GAAP basis, offset by a slightly higher reserve build of $904 million. Managed net credit losses declined by 5% to $5.7 billion. Total assets declined by 5% to $358 billion in the fourth quarter. Turning to the special asset pool on slide 12, reported revenues of $162 million were down sequentially driven by the absence of large positive marks booked in the prior quarter. Credit costs totaled $793 million, down 26% sequentially primarily driven by a decline in net credit losses to $950 million. Assets were $154 billion at the end of the period, down 15% or $28 billion during the quarter including $10 billion of asset sales. These sales were executed at or above our marks generating approximately $800 million in pre-tax gains. Of the remaining assets, approximately 40% are accounted for at fair value. Slide 13 shows the results for the corporate other segment. Negative revenues in the fourth quarter reflect the $10.1 billion pre-tax charge related to TARP repayment and exiting the loss sharing agreement. Assets of $230 billion include approximately $110 billion of cash and cash equivalents. Slide 14 shows total Citigroup credit provisions, total provisions were $8.2 billion in the fourth quarter, down 10% sequentially driven by a 10% decline in net credit losses to $7.1 billion. Our loan loss reserve build decreased by 6% to $755 million and we recorded a $294 million provision for policy holder benefits and claims. The majority of credit costs are generated by our consumer businesses in regional consumer banking and local consumer lending. Consumer provisions declined by 4% to $7.4 billion in the fourth quarter. I’ll discuss consumer credit trends in more detail in a minute. Corporate credit costs were $819 million in the fourth quarter, down 44% sequentially. The decline in credit costs reflects continued stabilization in credit quality across most segments of our corporate loan portfolio as well as a decline in loan balances. Our corporate non-accrual loans declined by 8% to $13.5 billion in the fourth quarter but remain at historically high levels. Consistent with last quarter, over two thirds of our non-accrual book is current and continues to make their contractual payments. While we are heartened by signs of stabilization in corporate credit quality we remain vigilant in monitoring the portfolio and reserve levels. Our total loan loss reserve balance for funded corporate loans was $7.6 billion at the end of the quarter or 4.6% of corporate loans, up from 4.4% last quarter. Slide 15 shows consumer credit trends for Citigroup. While our net credit loss ratio declined again this quarter to 5.5%, our loan loss reserve as a percentage of end of period loans grew to 6.7%. This divergence in trends is driven in part by the impact of forbearance programs within our consumer portfolios. As one example, as we discussed last quarter net credit loss in reserve trends in our mortgage portfolio are effected by the government’s home affordable modification program, or HAMP. If loans in the trial period go beyond 180 days past due, we do not charge them off as long as they have made one payment under the program. As such we build reserves to offset the impact on net credit losses. As a result HAMP trial modifications have the effect of marginally reducing our reported net credit losses and increasing our required loan loss reserves. In our card portfolio net credit losses and reserves also reflect the impact of forbearance programs which I’ll discuss in more detail later. Our consumer loan portfolio continued to decline in the fourth quarter driven by lower asset levels in Holdings. Slide 16 shows the trend of our consumer net credit losses for Citicorp and Citi Holdings. Net credit losses declined this quarter to $6.1 billion reflecting lower losses in Citi Holdings. Our consumer loan loss reserves remain stable at $28.4 billion. The coincident months of coverage have increased from 13.3 months last quarter to 14.1 month this quarter. As mentioned earlier the relationship between net credit losses and reserves was effected by forbearance programs driving a portion of the increase in coincident coverage. Nearly 80% of our managed consumer credit losses were generated in North America concentrated in the Citi branded and retail partner cards portfolios and in US consumer mortgages. Consumer credit losses have improved most significantly outside of North America. While managed net credit losses decreased by 6% to $8.9 billion, international net credit losses declined by 12% to $1.9 billion. Slide 17 shows consumer credit trends in our major international markets. Economic recovery continued in Asia this quarter resulting in lower net credit losses and 90-plus day delinquencies. Net credit losses declined across all major markets with particular strength in Korea. The decline in delinquencies reflects significant improvement in Korea as well as in India. In Latin America consumer net credit losses declined in the fourth quarter reflecting significantly lower losses in Mexico cards. The repositioning of the Mexico card portfolio is largely complete and we are now investing to grow this business. Ninety-plus day delinquencies were fairly stable. In EMEA consumer net credit losses were flat on a dollar basis and 90-plus day delinquencies showed improvement this quarter. And finally international local consumer lending primarily includes our consumer banking operations in Western Europe, which we will exit over time. Both net credit losses and 90-plus day delinquencies declined in the fourth quarter. Slide 18 shows managed North America credit trends for Citi branded cards in Citicorp and retail partner cards in Citi Holdings. As we discussed last quarter we have been actively working to remove high risk customers and add higher quality accounts. On a net basis end of period open accounts were down 11% in both Citi branded and retail partner cards versus prior year. In addition to tightening credit standards, we also continue to pursue other loss mitigation efforts including improvements in collections effectiveness and various forbearance programs. Importantly we believe forbearance programs improve the longer-term quality of these accounts. For example 24 months after putting an account on forbearance we typically reduce losses by roughly one third compared to similar accounts that did not go into forbearance. We tend to see that this benefit is sustained over time across our portfolios. The outperformance of treated loans is generally greatest during the first 12 months after beginning a forbearance program. Following this period our losses increase by typically stabilize at levels which are still well below similar accounts resulting in the improved cumulative loss performance that I noted earlier. As accounts enter into forbearance programs we build loan loss reserves to offset the early impact on net credit losses. Recognizing the impact of forbearance programs we are nevertheless seeing some early positive credit trends in both Citi branded and retail partner cards. While both portfolios experienced an expected seasonal increase in 90-plus day delinquencies in the fourth quarter early bucket delinquencies improved on a dollar basis. Quarterly managed net credit losses also declined on a dollar basis for both businesses sequentially. Citi branded cards had its first quarterly decline in managed net credit losses in quite some time, down 6% to $1.95 billion and retail partner cards recorded a second consecutive decline down 2% to $1.96 billion. Slide 19 shows the historical trends for net credit losses in 90-plus day delinquencies in our mortgage business, split by first and second mortgages. Second mortgages continue to show positive trends in both net credit losses and delinquencies reflecting the impact of portfolio repositioning and loss mitigation. First mortgages also experienced lower net credit losses in the fourth quarter. Net credit losses declined by 3% driven primarily by HAMP modifications. We booked additional loan loss reserves to neutralize the impact of HAMP on total credit costs. Ninety-plus day delinquencies continued to grow in first mortgages in the fourth quarter driven largely by HAMP as well as the increased backlog in foreclosures. As we discussed last quarter loans in the HAMP trial period continued to age through the delinquency buckets even if borrowers are making their agreed upon lower payments. First mortgage loans in the 30-89 day delinquency bucket declined by 11% to $5.9 billion. This decline is largely attributable to a change in the process for entering HAMP trials as a greater amount of loans flowed into the 90-plus delinquency bucket versus new entries. We are now verifying income up front for potential HAMP participants before they begin making lower monthly payments. We believe this will limit the number of borrowers who ultimately fall out from the trials and mitigate the early bucket delinquency impact. While it is still very early to comment on the ultimate outcome of HAMP our results to date are beginning to show promise. Slide 20 shows more detail on the 90-plus day delinquencies in our first mortgage portfolio. As discussed the increase in 90-plus day delinquencies to $11.9 billion in the fourth quarter was attributable to both HAMP modifications and the growing backlog of foreclosures in process. The growing amount of foreclosures in process has a few implications, first, it inflates the amount of 180 day plus delinquencies in our mortgage statistics. Also, it results in increasing levels of consumer non-accrual loans as we are unable to take possession of the underlying assets and sell these properties on a timely basis. And it has a dampening effect on NIM, as non-accrual assets build on our balance sheet. Slide 21 summarizes our quarterly asset trends. We ended the quarter at $1.9 trillion in total assets, down slightly from the third quarter. Citi Holdings now represents less than a third of our total assets. Cash and deposits with banks decreased as a percentage of assets to 10.4% primarily due to an increase in investments and liquid securities held for sale. Our deferred tax asset balance was $45.8 billion at the end of the fourth quarter with the growth from the end of the third quarter driven primarily by the loss resulting from TARP repayment and the exit from the loss sharing agreement. As you can see at the bottom of the slide total NIM declined 30 basis points to 2.65% in the fourth quarter. There were two principal drivers, first lower asset yields due to a couple of factors. We continued to de risk loan portfolios and expand loss mitigation efforts and a reduction in both consumer and corporate loan balances has resulted in the balance sheet mix shifting towards lower yielding assets compared to prior periods. Second, NIM in our trading businesses was lower in the quarter. Slide 22 shows the trend in our key capital metrics. We maintained strong capital ratios in the fourth quarter even as we repaid TARP and exited the loss sharing agreement. To wrap up, in the fourth quarter we continued to make progress on our goals across the business. We repaid TARP and exited the loss sharing agreement. We continued to invest in our core Citicorp franchise particularly in Asia and Latin America. We made significant progress in reducing Citi Holdings’ assets while continuing to control costs. And we maintained very strong capital and liquidity. As we go into 2010 we will continue to manage Citicorp and Citi Holdings very differently. In Citi Holdings we will continue to focus on reducing assets which will result in lower revenues and operating expenses in 2010. In Citicorp our focus remains on serving our core institutional corporate and retail client base around the world. This client franchise remains strong as evidenced by our steady revenue results over the past three years despite trying economic conditions. We will continue to invest in areas such as Asia and Latin America where economic recovery and growth is already taking hold. But in North America we expect to face some headwinds including the implementation of CARD Act. While we believe we can mitigate a portion of the impact, we currently expect CARD Act could reduce revenues by a net pre-tax amount of approximately $400 to $600 million in 2010. We expect operating expenses to grow modestly in Citicorp in 2010 as a portion of the cost reductions achieved in Citi Holdings is reinvested in our core franchise. We believe credit costs will remain a significant driver of our results in 2010. Certain regions including Asia and Latin America are showing steady improvement in consumer credit trends, which we expect to continue this year as long as economic recovery in these regions is sustained. In North America we believe credit trends will largely depend on the broader macroeconomic environment as well as the impact of industry factors such as CARD Act implementation and the outcome of the HAMP program. Across our major North America consumer credit portfolios we expect a modest increase in net credit losses in the first quarter of 2010, after which we may see some slight improvement. However the outcome for the second half of 2010 will largely depend on the economy. Changes to our consumer loan loss reserve balances will continue to reflect the losses embedded in our portfolio due to underlying credit trends as well as the impact of forbearance programs. And finally, corporate credit is inherently difficult to predict and therefore the recognition of credit losses and changes in reserves will be somewhat episodic. That concludes the review of the quarter, now I’ll turn it back over to Vikram.
Vikram Pandit
John, thank you very much. So we enter 2010 with a strong foundation for the future, with a strong franchise and powerful operating businesses in Citicorp. We expect to be relentlessly focused on our expenses. We expect to reduce assets and costs in Citi Holdings. And have both the liquidity and capital to do so in an orderly way. We expect to reinvest some of that to grow Citicorp and build our core businesses. And we have good momentum with clients. US consumer credit remains as the key remaining issue, in particular mortgage credit remains the challenge. We have proportionately less exposure to the commercial side. We are completely focused on managing this part of the credit cycle and that you see the operating leverage we have created in the last few quarters when the credit cycle turns. With that, let’s open it up for Q&A from everybody on the line, thank you.
Operator
(Operator Instructions) Your first question comes from the line of Guy Mozkowski - BofA Merrill Lynch Guy Mozkowski - BofA Merrill Lynch: I was wondering first of all if we could just make sure that we understand when you say CVA are you referring only to the change in value of debt instruments that you’ve issued because of changes in your own spreads or is there some counterparty credit effect as well.
John Gerspach
When we talk about the impact of CVA on our results its inclusive both of the CVA on the fair value option debt as well as the CVA on our derivative assets and liabilities and you can see that clearly laid out in some of the appendix schedules that we’ve got in the back of the deck. Guy Mozkowski - BofA Merrill Lynch: And then can you talk a little bit about the calculation error or whatever it was that caused the reversal, can you tell us which quarters were principally effected and was that largely again a structured product thing having to do with your own spreads or was that mostly counterparty.
John Gerspach
Its totally concentrated in the CVA that we calculate on our fair value option debt and what we discovered is that just in the mechanics of the calculation that we employed what we tended to do was to overstate the CVA impact in the period that we both issued the debt and then retired the debt so that we recorded a higher CVA benefit in the period of issuance and then suffered a higher loss in the period of retirement. It was spread out over a number of quarters. There was no individual quarter that was significantly impacted. Guy Mozkowski - BofA Merrill Lynch: So it goes back a few years really over the entire period during which you’re issuing some of these structured liabilities.
John Gerspach
That’s correct, but as you can imagine it grew as our spreads widened out and it also varies by quarter depending upon issuance volume and retirement. Guy Mozkowski - BofA Merrill Lynch: And I noticed that in securities and banking in the quarter you had a tax benefit that was very large relative to the pre-tax income, is that related to this CVA issue.
John Gerspach
No, not specifically. Its related as with all our other tax benefits to the overall mix of where we generate our net income. Guy Mozkowski - BofA Merrill Lynch: So were we seeing essentially a true up effect because you had overstated tax costs earlier in the year.
John Gerspach
No, obviously as we recorded the $840 million correction of the miscalculation it had some small impact on the overall tax position but in general the taxes in all of our businesses are predicated upon where we generate either gains or losses and in which tax jurisdictions. Guy Mozkowski - BofA Merrill Lynch: So maybe you can just help us with the fourth quarter in terms of understanding why the tax benefit was I think over $400 million in [S&V] versus the pre-tax income number that was a loss of around $79 million I think.
John Gerspach
To tell you the truth I don’t have a readily available answer for the tax provision in the individual businesses, I’m sorry. Guy Mozkowski - BofA Merrill Lynch: And then finally just sort of a bigger picture question if I might, Vikram started off the call by talking about how over the course of the year you did some very significant overhaul of your risk management processes and maybe you can just take us through the major elements on both the institutional and the consumer side, what’s really different now.
Vikram Pandit
A number of things are different, to start with we have a different group that’s managing risk within some of our most senior risk managers in the entire company. Some of them are new to the company, some of them are new to the jobs. But it’s a different group of people who are running risk. Secondly we have changed the structure of risk management to make sure that we look at product risk, we look at sector risk, we look at geographical risk, we look at client risk and Brian Leach who is our Chief Risk Officer, has put people against these and has the MIS systems to be able to ascertain where the risk is coming from and how its aggregated correctly. We’ve also put in place extensive testing of risk including stress testing including things like scenario analysis, all the analytics that go with that and obviously in addition to that we have made sure that we have adjusted any risk limits and any risk progress that we’ve done in these businesses consistent with what we think is the right risk appetite for the future for the company. Those are just some of the elements and obviously the biggest part of risk, changing risk, is the culture and we’ve been focused on that as well with significant shift in the culture both in the consumer businesses as well as in our institutional businesses.
Operator
Your next question comes from the line of Glenn Schorr – UBS Glenn Schorr – UBS: First balance sheet related, so I noticed the mix shift on balance sheet that you mentioned meaning total loans down 5%, the securities portfolio up 24% sequentially, you mentioned that a lot of that liquid but just in the grand scheme of things, [thoughts] on total assets didn’t shrink that much, what is your debt maturity schedule look like and how do you think about shrinking overall balance sheet, what seems to be staying the same but getting a lot more liquid. Is that all on point.
John Gerspach
Pretty much so, I’ll try to address them in some order and if I don’t hit them all, come back at me. You mentioned the debt maturity schedule and I think consistent with what we mentioned last time, we’ve got somewhere around $50 billion of debt coming due this year. I think we were pretty clear last time that we don’t anticipate the need to roll over a significant portion of that debt. As a matter of fact what we would anticipate is that our issuances in 2010 will be no more than $15 billion. And then as far as the overall construct of the balance sheet again, as Holdings, as we’re successful in reducing Holdings we will look to grow the assets in Citicorp, not necessarily dollar for dollar but there will be a good deal of growth. And yes, as we talked last quarter we recognize that we have ample liquidity and we think that that gives us a great deal of flexibility going into 2010 so that depending upon what happens in the overall economy, whether its here or overseas, we have the cash and capital to put to work to address opportunities. Glenn Schorr – UBS: And I’m assuming most of what you’re buying is short duration, agency.
John Gerspach
I’m not going to go into a deep description of everything that we’re buying but— Glenn Schorr – UBS: Its short and liquid.
John Gerspach
Its highly liquid. Glenn Schorr – UBS: And I don’t know if this is related or not related, but I noticed on balance sheet that the cumulative other comprehensive income loss actually went up, it got greater in the quarter by about 7%, which was a little weird just considering that the world seemed to be a little bit better. Is there any color there that you could help us with.
John Gerspach
That was basically entirely driven by changes in foreign currency, so that is basically currency translation adjustments. Glenn Schorr – UBS: Then lastly at the IB, now I think expectations were set that it was a tougher quarter and a lot of people sat on their hands from Thanksgiving on, but the numbers might have been down a little worse than that, I didn’t know if there was more color just other than lower volume and volatility that, in other words was it spread evenly across the board or if there was something more in equities or fixed income you could expand on.
John Gerspach
No actually I think if you talk to some of the guys on the desk, they’ll say that people sort of just sit on their hands even before Thanksgiving and it pretty much was spread across most of our businesses, I’d say maybe impacted our G10 rates and currencies business a little bit more than others and certainly had less impact on our rates and currency business in the emerging markets. Glenn Schorr – UBS: So it sounds like it was spread pretty far and then, we can’t see comp in securities and banking anymore, total expenses were down 17% year on year 2009 from 2008, could you tell us where headcount was and if total expenses are any proxy towards where comp is, we’re just trying to create a like for like adjustment across the—
John Gerspach
I don’t have the headcount figures for security banking with me but I’d hate to do this to you but if you follow-up with John Andrews and his IR staff they’ll be happy to get you the details.
Operator
Your next question comes from the line of Matthew O’Connor - Deutsche Bank Securities Matthew O’Connor - Deutsche Bank Securities: If I could drill down into the net interest margin on a consolidated basis just a little bit you mentioned obviously the balance sheet mix is a drag and there’ll probably be some continued drag from that, but there’s also the two big environmental drags in terms of you holding liquidity and the drag from NPAs and just reversals of accrued interest, can you size those last two. I think its helpful as we think about what normalized earnings might be over time.
John Gerspach
And I have to tell you, you’re fading so I was clear until you actually got to the question, but you wanted me to do what? Matthew O’Connor - Deutsche Bank Securities: In short I’m just asking you to size the drag, just margin from holding excess liquidity as well as the drag from funding nonperforming assets and any reversals of accrued interest.
John Gerspach
I don’t have a break out along those lines that I’m prepared to share right now. Matthew O’Connor - Deutsche Bank Securities: Just going in a different direction if we look at the expenses, you mentioned there was some repositioning costs, collections, FX, can you just put some numbers around those three buckets.
John Gerspach
From a Citicorp point of view, the $300 million of increased expenses that you see in Citicorp basically splits out a third each for foreign exchange, investment, growth in investment spending, and repositioning costs. And then on the Holdings side, I would say its pretty much split between the growth between the additional headcount and the repositioning. Matthew O’Connor - Deutsche Bank Securities: And then all the initiatives that you have to work with customers to keep them in their homes and collect as much as you can on the credit card, have you estimated what that impact might be to current charge-offs.
John Gerspach
Well as I said we certainly have got a very clear estimate of what it is with the HAMP program, and in the fourth quarter we saw that the HAMP program just by the way that the mechanics work, reduced our NCLs by approximately $200 million and to offset that we built additional reserves. It’s a little less specific as far as in the cards business, but as I mentioned on the call we are certainly aware of the impact of forbearance programs and don’t forget we’ve been working forbearance programs for years so we constantly have forbearance, accounts coming into forbearance, rolling out of forbearance, and so what we’ve tried to do is mitigate that impact on the NCL by building additional reserves. But its very much tied into the flow of accounts coming in and coming out. So I can’t give you a very specific dollar impact on the NCLs for the quarter other than to say that we are certainly aware that they do have an impact and that’s why we build additional reserves.
Operator
Your next question comes from the line of Betsy Graseck - Morgan Stanley Betsy Graseck - Morgan Stanley: During the quarter you made a management change in the US consumer commercial bank, [inaudible] Manuel Medina-Mora to firm the business, could you just give us some color as to what drove that change and how you’re expecting him to drive the business going forward and what the deliverables are that you’re anticipating.
Vikram Pandit
Obviously Terry made a lot of very significant changes for us over the last couple of years and as she and I talked about where the business was going and also her own objectives she conveyed to me her desire to really step down from the full time role and become a senior advisor given some of the personal issues that she is dealing with. Manuel is a very well seasoned retail and commercial banker as you know, he runs a very successful business in Latin America, Banamex being part of that. There are some very straightforward things that he is going to work on, some of them are exactly the things that Terri started but as we look at our consumer banking business around the world, we do realize there are a lot more synergies to be gained by looking at the global expense structure, global technology, global databases linking clients and their families around the world. And that’s something that’s going to benefit all our businesses around the world but is really going to benefit the US consumer business as well because we happen to be in the larger cities, with a lot more global population and there’s a lot of linkage particularly the emerging markets in these cities. Example of the successes, some of the things we’re seeing happening in San Francisco as well as in New York City, we expect to see a lot more of that and hopefully that translates into an advantage of the global scale we have regardless of what and how big we are in any one jurisdiction around the world. The other aspect of this is to continue some of the things that Terri has put in place in the US. Obviously we’ve got a lot more execution to do in the US. The US consumer business by the way is doing steadily better as you look at it from our deposit growth aspects. We have a small commercial banking presence in the US that we’re growing as well in a very methodical way. Same thing with personal lending. And so these are all the efforts that we’re going to continue and hopefully in addition to the changes that Terri made in there, Manuel will bring to them his own experience from his background and we expect to keep going on them. And all of that really has to translate into a much more efficient and a much more productive consumer bank globally. Betsy Graseck - Morgan Stanley: Since he’s used to running either in the top three businesses or growth oriented businesses, I’m wondering if his capping for this role suggests a higher degree of reinvestment in the US [inaudible] since Citi has had over the past decade or so.
Vikram Pandit
We are reinvesting in the US business and a lot of those reinvestments are in technologies, a lot of them are in systems. We also believe there is a larger clientele that we can serve versus the one we’re serving in those cities we’re in and we haven’t tapped as aggressively into our global reach as we want to as well, going forward. All of these are opportunities and I’m very confident that he’ll be very good at going after them and of course, some of these might require dollar spending but that goes back to what John Gerspach and I said before, as we reduce Citi Holdings both the assets as well as the cost side, some of that we’re going to reinvest in our core businesses and the US consumer is one of them. Betsy Graseck - Morgan Stanley: It wasn’t on page 23, it wasn’t called out so I was just wondering if there was, if you were going to be reinvesting. A different way of getting at the NI M question, you indicated the two main pieces that drove the decline in the 30 basis points of NIM this quarter, could you just give us what the basis points are between those two different buckets, in other words how much did the corporate trading lack the NIM this quarter.
John Gerspach
I don’t have the exact figures with me, but roughly the corporate trading NIM contributed half, maybe a little bit more of half of the total impact.
Operator
Your next question comes from the line of Michael Mayo – CLSA Michael Mayo – CLSA: First just a couple of factual questions, did you sell any NPAs during the quarter.
John Gerspach
I believe we did. Michael Mayo – CLSA: And how much did you sell.
John Gerspach
I don’t have that exact number with me but obviously in some of the asset sales that we did out of the special asset pool, some of those would have been non-accrual loans. Michael Mayo – CLSA: If you hadn’t, just to look at core trends, if you hadn’t sold the NPAs, would the total NPA balances have gone a little up instead of a little down.
John Gerspach
Well actually, you’re talking NPAs or non-accrual loans, I just want to be specific. Michael Mayo – CLSA: I guess NPAs went up a little bit as it was from 33.6 to 33.7, I’m just trying to figure out on a core base what NPAs would have done if you hadn’t sold anything.
John Gerspach
They would have been a little bit higher if we hadn’t sold anything. Michael Mayo – CLSA: So what, 34, 35, 36—
John Gerspach
I can’t give you an exact amount, I’m sorry. Michael Mayo – CLSA: And how much was the benefit due to FX on revenues this quarter with the weaker dollar.
John Gerspach
We don’t really track the overall, I try to give you that in each of the businesses, and it certainly should be something John Andrews and his guys can help you with. Overall when you take a look at the net impact of FX on margin whether its on the expense line and the revenue line it tends to be a very small impact looking all across Citicorp. Michael Mayo – CLSA: And then on credit, the press release says we remain cautious, you highlighted the US credit market, you highlighted US consumer, you highlighted the impact of forbearance, on the other hand you said credit costs should be a big driver this year, so I’m not sure what your credit guidance really is. Is credit getting better, do you expect total credit costs to stay here or go a lot lower this year.
Vikram Pandit
We have different stories in different parts of the world. I think that’s the place to start. John was very clear about what he saw internationally and the chart indicates that we actually feel pretty constructive about what’s going on in the emerging markets and our foreign credit situation. And then the US credit situation as you know in my view right now comes mostly down to the mortgage portfolio. Of course we have a large credit card portfolios both in branded and the partner cards, but it’s the US mortgage portfolio that we’re watching most carefully. When you pull it all together I think John did give some guidance about somewhat slightly higher credit costs in the first quarter and then obviously after that depending upon where the economy goes. Michael Mayo – CLSA: And then last question, I was clearly wrong in saying you’d have a DTA write-down this quarter so I’m just trying to figure out where I might have been wrong or maybe if you should still have a write-down. Your DTAs you said are $46 billion so I guess I’m asking, isn’t it hard to deny that there is substantial negative evidence for some sort of valuation allowance against your DTAs. Twelve quarters of cumulative losses create substantial negative evidence so since it is so difficult to conclude that a valuation allowance is not necessary, how did you get over that hurdle.
John Gerspach
I think you’ve obviously been through the relevant literature and you’re quite right, the literature notes that if you’ve got three years of cumulative losses its considered to be negative evidence. And as we’ve mentioned I think each of the last several quarters we follow the same process consistently which is we look at where our DTA balance is at the end of a quarter, where its going to be at the next year end, at year end in this case, and then we look at what type of positive evidence that we have to support the balance. And the two pieces of positive evidence that we continue to refer to would be first the fact that we have forecasted income, even under stress scenarios that ensures the sufficient taxable income during all the carryforward periods. And secondly we have tax planning strategies that are available to us and that which we document for ourselves and for the regulators etc. And based upon these two factors, the literature does not support a valuation adjustment at this time. Michael Mayo – CLSA: I guess one follow-up, the time period is so far out, that to have forecasted income that uses the DTAs, you can always the model work if you’re almost any company and if that was always the sole basis you might not see a whole lot of DTA write-downs, so I guess my question is how much did you specifically rely on the tax planning strategies to overcome the hurdle.
John Gerspach
I’m not going to go into that level of detail with you. You can imagine why. Quite frankly we lay it out. You’re quite right there are extensive carryforward periods. I think also as we mentioned last call and the call before, there’s a substantial portion of our DTA, at year end its probably over 60% of the DTA that is actually generated by future tax deductions, notably loan loss reserve provisions and these are charges that we’ve taken against our GAAP income that have not appeared on a tax return as yet and so there hasn’t even been the beginnings of a carryforward period. Michael Mayo – CLSA: Is this story over, does KPMG come in and say, before you release your K that maybe you have to write this down or is this done, that you’re not taking a write-down.
John Gerspach
As you know, none of our financials are done. We’re not done. KPMG is not done. Nobody is done with financial statements until they file their 10-K.
Operator
Your next question comes from the line of James Mitchell – Buckingham Research James Mitchell – Buckingham Research: Just a couple of quick follow-ups maybe on the balance sheet, you mentioned $48, close to $50 billion in cash being reinvested, it doesn’t look like if I look at your average balance sheet versus period end just correct me if I’m wrong, but it doesn’t seem like you’ve gotten any of that impact really felt in the NIM at this point.
John Gerspach
You’re absolutely right, most of that occurred later in the quarter. James Mitchell – Buckingham Research: Okay so we should see that in the first quarter. And maybe a follow-up on the $10 billion of asset sales at or above marks on SAP, as credit markets continue to recover should we expect or hope I guess to see that accelerate over the next couple of quarters or at least stay at that kind of level or was that sort of you thought more one-off.
John Gerspach
No, again our ability to dispose of the assets in the special asset pool, as you quite rightly note is somewhat dependent on market conditions. I don’t want to try to forecast that we’re going to be able to do another $28 billion reduction in our special asset pool during the first quarter. We put quite enough pressure on Michael Corbat who runs our Citi Holdings business as it is. If I told him he had to replicate the fourth quarter and the first quarter I’m not quite sure what his reaction would be. But that is clearly something that we are focused on and we’ll take advantage of all available opportunities. James Mitchell – Buckingham Research: Do you feel that there’s still room to sort of whittle that down actively.
John Gerspach
Yes, don’t forget there is a natural, there’s a barrier that is somewhat built into the special asset pool and the fact that we do have some of those assets, held to maturity. So that does become a bit of a stop but other than that, we’re constantly looking for other opportunities. James Mitchell – Buckingham Research: And then on the non-accrual corporate book you mentioned that two thirds are current, what’s going to make you get more comfortable if they’re current and putting them back into performing from non-accrual.
John Gerspach
Well you’d like to make sure that the, obviously when we put something into non-accrual and again I think you’re going to see the largest impact, the largest jump we had in non-accrual was the fourth quarter of last year but we look at not just is a company paying but also at its overall underlying health. And so as companies, where we’ve got these loans extended to, start to evidence their own financial recovery, that in connection also with maintaining a current payment schedule would cause us then to put them back into the regular book. James Mitchell – Buckingham Research: Do you have any, its very early days, any kind of color on trading as it started off the year, have we seen a bit of a snap back.
Vikram Pandit
I guess its safe to say that the securities and banking business is showing the usual, how should I say this, the usual seasonality so far.
Operator
Your next question comes from the line of John McDonald – Sanford Bernstein John McDonald – Sanford Bernstein: One more question on the NIM focusing not on what happened quarter to quarter but whether its been low the past few quarters relative to what you might call normal, can you just remind us if you added up the extra liquidity and cash you have today versus what kind of ballpark you historically have carried and what might be normal, just to give us a framework there.
John Gerspach
The extra liquidity, its probably running at least twice more than what we would normally carry, and some people might argue that its even perhaps three times as much. John McDonald – Sanford Bernstein: And that relates to your caution conservatism just about funding and the overall environment and how would you characterize it.
John Gerspach
Yes, I’d say as we mentioned the last time that we were looking to maintain ample liquidity and that’s still our position early in 2010. We think its prudent at this point in time to be liquid. John McDonald – Sanford Bernstein: And on capital ratios understanding rules still have to be finalized do you feel you have a good sense that the capital ratios that you have today will be viewed as adequate or even maybe more than adequate by the regulators or is there still a great feel of uncertainty about what you might eventually have to manage to.
John Gerspach
Well you know, I’d say that there still is some uncertainty as to what ultimate levels we’re going to have to manage to. But you’ve also got to take into consideration that we just completed the repayment of TARP and the exiting of the [ring fenced] asset agreement and as we came out of that, we came out of that with the capital ratios that we currently hold. So you’ve got to think that all of that was taken into consideration as we came out of those two transactions. John McDonald – Sanford Bernstein: Right there was a lot of discussion with regulators and other parties about that. And then on credit you mentioned the improved credit on second mortgages any more color on that. You mentioned some repositioning that you did, what drove the improvement in second mortgages in the Holdings.
John Gerspach
Second mortgages and I think we mentioned this last quarter as well, we were early on pushing that book. We’ve cut lines dramatically and again we did that fairly early in the crisis and so that’s just been something we’ve been working down over time. It’s a book that perhaps has burned out. Now having said all of that, its still subject to the same caveats that I would put on some of the other comments that I made on credit in North America in that its ultimately going to be subject to the overall US economy as well as the impact of some of the other factors including HAMP. John McDonald – Sanford Bernstein: And then also you mentioned some stabilization in corporate, is that kind of C&I in the US and small business in the US.
John Gerspach
Well we don’t really have a very big small business portfolio in the US. But the overall trends I mentioned as far as the stability of the credit quality of the portfolio would extend both to our US book as well as our regional loan portfolios.
Operator
Your next question comes from the line of Edward Najarian - ISI Group Edward Najarian - ISI Group: Quick conceptual question sort of big picture question on Citicorp normalized earnings, as I look at the fourth quarter income statement for Citicorp and I [add] CDA and I try to normalize credit losses and I also try to normalize taxes of approximately 100 basis point ROA on the business, normalizing back all those things, so I guess I’m wondering what’s going to be the real driver above and beyond credit improvement or CVA add back that’s going to get you up to 125 to 125 basis points and along with that to get into that range, I would need to take the efficiency ratio of the business down from about a 63% core currently and that’s with the CVA added back down to something around 50 and I’m just wondering if that’s sort of your outlook or do you anticipate a lot of revenue growth or a little of both or some perspective there.
John Gerspach
Just as you’re looking at the fourth quarter I also don’t think that the fourth quarter revenues even adjusting for CVA are necessarily indicative of what we would expect over the course of a full year. So I would encourage you especially because of the seasonality in the securities and banking business and so I’d encourage you more to take a look at the full year revenues of Citicorp and do some of those same adjustments that you’re looking at as far as trying to adjust for the CVA. And I think then that you’d get a slightly improved version of what the return on assets in Citicorp are right at this moment.
Vikram Pandit
Let me add to that, obviously we gave you a breakdown in the appendix on page 26 on what the adjusted return assets has been over all of 2009 Ex LLR and when you look at the numbers the ROA in Citicorp was 1.7% and when you add all the Citicorp other which includes the liquidity portfolio and things of that sort, we earned about 1.2% of ROA in 2009. Obviously some of these numbers are impacted by the specifics of those businesses. But to your question when you look at kind of what we’re doing which is changing the asset mix in the business, changing the business portfolio, as well, and as well repositioning the businesses we still feel that 1.25% to 1.5% is a target for us in both the Citicorp and corp other combined. That’s about a $1.3 trillion of assets and we will by the way also expect that as we reduce Citi Holdings some of those assets are going to be put to work in Citicorp as well over time. And its easy to go down line by line, I’m not going to do that right now, but the guidance is still the guidance we have and look at the data on page 26, maybe at a later date, John Andrews can help you with that. Edward Najarian - ISI Group: And do you think there’s and it could come from the revenue side or the expense side, do you think there’s some pretty significant additional efficiency ratio improvement to go in Citicorp.
Vikram Pandit
We continue to do a lot of reengineering and that’s an ongoing process and yes we are focused on that in Citicorp and I’m glad you asked the question on efficiency ratio basis because that’s exactly the way to look at it because there are opportunities for us to increase our productivity and that’s not only cost related as you talked about, but also asset related and when you take a look at those three things, which is a reengineering asset related efficiencies as well as a repositioning of the businesses we’re talking about, that does make up for what we think is going to be a significant amount of improvement over time.
Operator
Your next question comes from the line of Chris Kotowski - Oppenheimer & Co. Chris Kotowski - Oppenheimer & Co.: Looking at page 27 of the presentation of the first quarter asset transfers, can you flush that out a little bit and were these just assets that were misclassified or is it just that they had been the underlying quality of those assets had been improving more than you thought and therefore you moved them over and are these business units or just loans and securities.
John Gerspach
Great question and the answers are going to run the gamut, if you start at the top of the page as your reference page 27, moving the two, the Afore’s and the Saguaros’ back into Citicorp is a strategic decision that we’ve come to working with Manuel and we actually believe these businesses probably should have been quite frankly kept in Citicorp from the beginning. So that’s just a refinement of our strategy. The rest of the assets primarily are due to the fact that when we established the special asset pool, we insisted that any asset that was in the [ring fenced] agreement needed to be in the special asset pool. And as we began to finalize the population of assets that were in the special asset pool, what we found was that in order to fill up the $300 billion we actually needed to move more high quality assets into that pool than we otherwise would have. And so now that the [ring fenced] agreement is no longer in place it gives us the opportunity to look into the special asset pool and then pull back some of those corporate loans in particular that really belonged in Citicorp, again, from the beginning. Chris Kotowski - Oppenheimer & Co.: And the consumer mortgages—
John Gerspach
The consumer mortgages would be the third part of that story. Its obvious that we are in the retail banking business and mortgages are a piece of that and we’ve got a growing book of mortgages now since we moved the entire mortgage business, we have a growing book of mortgages in the special asset pool that are actually underwritten by the standards of our North America businesses and so they reflect the new underwriting standards. They’re associated with our existing customer base and therefore over time that’s a piece of the business that we’re going to continue to run so these mortgages really belong back in Citicorp and those are really the three types of decisions. Chris Kotowski - Oppenheimer & Co.: And then on page 30 of this financial supplement, where you look at allowance for loan losses it looks like, you had [$70.8] billion in loan loss provisions, $7.1 billion in losses, so theoretically the allowance should have gone up by a couple of hundred million and instead it went down and it looks like its at 1089 other, was that a loss or is that an accounting adjustment.
John Gerspach
Other, and we try to encompass that in the footnote that we’ve got on that page. Obviously as we sell assets there are loan loss reserves associated with those asset sales and so as we sell and asset we remove the reserve that’s associated with it. We also to the extent that we have taken some assets in different periods and moved it into a held for sale account, held for sale is in the other asset line of our balance sheet and we also then remove the reserves associated with that as well. The fourth thing and we mentioned it, we did some securitizations late in the quarter on the credit cards and again, as you securitize credit cards, reserves associated with those receivables also then come off the balance sheet. So that is all encapsulated in that 1089 adjustment that you see laid out as other.
Operator
Your next question comes from the line of Moshe Orenbuch - Credit Suisse Moshe Orenbuch - Credit Suisse: Just a quick one on the card business you had mentioned that the revenues were down in the fourth quarter in the North American card business in part because of the CARD Act and could go down further in 2010, could you just talk a little bit about what things happened already and what things are still going to happen as it relates to the CARD Act.
John Gerspach
The CARD Act itself was sort of split into some early impacts but the bulk of the CARD Act, I think its safe to say, will come into play in February. And so the bulk of the impact of CARD Act will be reflected on the business during 2010. Moshe Orenbuch - Credit Suisse: And is there, as you kind of go through those forbearance on the consumer side, is there a revenue implication of that as well or is that just kind of impacting the credit loss—
John Gerspach
No, no there is certainly a revenue implication as well. So if you think about the loss mitigation efforts that we have which would include the forbearance programs, they basically impact every significant line item on our P&L. Moshe Orenbuch - Credit Suisse: And a couple of people asked some version of this question, in terms of the slower recognition of losses because of forbearance both on the mortgage and on the loan consumer side, you kind of highlight the increase in months coverage, I guess just another way to look at this, is there like a, how much you would have wanted it to go up because of that as opposed to how much it did go up. In other words trying to separate out how much it should have gone up just because of that slower pace of recognition of loss because you’ve obviously got the reserves building and you’ve got a smaller level of current loss in anticipation of in the future. How much do you think it should have gone up.
John Gerspach
That’s not a question I’m really going to be answer to be honest with you, because that’s a whole lot of analysis and judgment really wrapped up into that especially when you get into the cards portfolios. As I said, I think the main thing is we’re certainly aware of the fact that the forbearance programs especially in cards, have a benefit in the early days of those programs. And because we know that it is a mitigating factor on the NCLs that we recognize we do build reserves than to appropriately state the cost of credit and it really isn’t a matter of what we would like it to be or what we would want it to be, its what level of reserves do we need to have in order to cover those losses.
Operator
Your final question comes from the line of Carole Berger – Luna Analytic Securities Carole Berger – Luna Analytic Securities: Could you just flush out a little bit more the FX impact on revenues and expenses in the international, it just seems to me that you had revenues up only 4% but expenses were up a much greater percent, so—
John Gerspach
I don’t have the overall FX impact on international, I just don’t have that with me. What I would encourage you to do is to call the Investor Relations people and they’ll get you the details that you need. Carole Berger – Luna Analytic Securities: Is it fair to say that revenues would have still been up without the FX impact in the quarter.
John Gerspach
I believe yes, but I’ll wait until you get the actual details. Carole Berger – Luna Analytic Securities: And is there any way you can sort of, Glenn tried to get at this, but when you look at comp ratios in the securities and banking business, is there any way to get to what the trend is, how much, was there an impact from the [Payzar] and/or government pressure at all this year, is that going to change going forward, just a body english, not exact kind of numbers.
John Gerspach
A body english, we were under the auspices of the [Payzar] for 2009, I think we were pretty clear about that so certainly the certain amounts and certainly the structure of our compensation as a firm was reviewed by the [Payzar]. And we just don’t disclose though the compensation specific to any of our businesses. We do give you the overall comp and benefits associated with all of Citigroup and then you can see that on the face of our income statement and we had about $25 billion of total compensation costs this year, that includes salaries, bonuses, health and welfare costs, etc. etc. and if you average that out over all our employees during the course of the year you come up with a figure of about $90,000 and I think that’s roughly down maybe 1% from last year.
Operator
There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.
John Andrews
Thank you everyone for listening today. It was a long call and complicated quarter. Obviously if you have follow-up questions, reach out to your local neighborhood friendly IR team and otherwise thanks again.