Mr. Carl V. Howard
General Counsel-Bank Regulatory
Citigroup Inc.
425 Park Avenue
2nd Floor/Zone 2
New York, New York 10043

Dear Mr. Howard:

This is in response to the request by Citigroup Inc., New York, New York, on behalf of Citibank (West), FSB, San Francisco, California ("CitiWest"), for an exemption from section 23A of the Federal Reserve Act in order that Citibank, N.A., also in New York, may contribute all the shares of its mortgage subsidiary, CitiMortgage, Inc., St. Louis, Missouri, to CitiWest. Citibank, N.A. and CitiWest are subsidiaries of Citigroup, and thus Citibank, N.A. is an affiliate of CitiWest for purposes of section 23A.¹ Citibank, N.A. proposes to dividend CitiMortgage to its parent bank holding company, Citicorp, New York, New York, which would then contribute CitiMortgage to CitiWest as part of a corporate reorganization.

Section 23A limits the amount of "covered transactions," which include loans and purchases of assets, between a bank (and its subsidiaries) and any single affiliate to 10 percent of the bank's capital stock and surplus. Covered transactions include a bank's loans to an affiliate, investments in the securities of an affiliate, purchases of assets from an affiliate, and certain other transactions. The contribution of CitiMortgage shares to CitiWest is a covered transaction under section 23A. CitiWest's capital stock and surplus totaled approximately $4.5 billion, as of December 31, 2002.

Section 23A specifically authorizes the Board to exempt purchases of real or personal property and to exempt "at its discretion [other]. . . transactions or relationships from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the purposes of this section."² The Board has approved exemptions in similar cases for one-time transfers that are part of a corporate reorganization and that are structured to ensure the quality of the transferred assets.³ The proposed transaction in this case is the result of a one-time corporate reorganization. According to Citigroup, this exemption is in the public interest because the reorganization would centralize its prime residential mortgage origination and servicing activities in a single entity and would result in administrative efficiencies and cost savings.

Section 23A generally prohibits a bank from purchasing low-quality assets from an affiliate, including an affiliated bank or savings association.⁴ Citigroup, however, proposes to leave [amount redacted] of low-quality assets in CitiMortgage when CitiWest acquires CitiMortgage. Citigroup asserts that CitiWest would not purchase these low quality assets from Citibank because Citigroup has committed that, prior to or at the time of transfer of CitiMortgage to CitiWest, Citigroup will make a cash contribution to CitiWest equal to the book value of any asset of CitiMortgage that constitutes a low-quality asset, as defined by section 23A, at the time of the transfer.

Citigroup has also made the following commitments, accepted by the Board in previous exemption requests:

1. Before acquiring the assets of CitiMortgage, CitiWest will review the assets to ensure that the transaction is consistent with safe and sound banking practices.
2. For two years after the purchase, Citigroup will make quarterly cash capital contributions to CitiWest equal to the book value, plus any write-downs taken by CitiWest, of any transferred loans that become low-quality assets during the quarter.
3. Before the purchase of the assets, a majority of the directors who serve on CitiWest's board of directors will review and approve the purchase.

In light of the foregoing and all the facts presented, the transaction appears to be consistent with safe and sound banking practices and on terms that would ensure the quality of the assets transferred. In addition, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision have informed the Board they have no objection to this proposal. Accordingly, the transaction appears to be consistent with the purposes of section 23A, and the Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board, and with the concurrence of the General Counsel, hereby grants the requested exemption.

This determination is specifically conditioned on compliance by Citigroup and CitiWest with all the commitments and representations made in connection with the request. These commitments and representations are deemed to be conditions imposed in writing in connection with this action and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific circumstances surrounding this transaction, and may be revoked in the event of any material change in those circumstances or any failure by Citigroup or its subsidiaries to observe any of their commitments. This action does not represent a determination concerning the permissibility of any other transactions that are subject to section 23A or concerning any other affiliate of CitiWest

Sincerely yours,

(Signed) Robert deV. Frierson

1. 12 U.S.C. � 371c(b)(1)(A). Return to text

2. 12 U.S.C. � 371c(b)(7)(C) and 371c(e)(2) (emphasis added). Return to text

3. See Travelers Group Inc., 84 Federal Reserve Bulletin 985, 1013-14 (1998); Letter dated November 14, 1996, from William W. Wiles to John Byam; letter dated April 19, 1988, from James McAfee to Timothy C. Roach; letter dated August 6, 1987, from William W. Wiles to Timothy McGinnis. Return to text

4. 12 U.S.C. � 371c(a)(3). Return to text