OFFICIAL SEAL OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

OFFICIAL LETTERHEAD STATIONARY 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

WASHINGTON, D.C. 20551 

ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 

June 30, 2006 

Carl Howard, Esq. 

General Counsel 

Bank Regulatory 

Citigroup Inc. 

425 Park Avenue 

2nd Floor/Zone 2 

New York, New York 10022 

Dear Mr. Howard: 

This is in response to the request by Citigroup Inc. (“Citigroup”), 

New York, New York, on behalf of Citibank (West), FSB (“CitiWest”), San 

Francisco, California, for an exemption from section 23A of the Federal Reserve 

Act and the Board’s Regulation W to permit CitiWest to acquire all the shares of 

its affiliate, CitiFinancial Mortgage Company, Inc. (“CitiFinancial Mortgage”), 

Irving, Texas. [Footnote 1. Begin text of Footnote 1. 12 U.S.C. section 371c; 

12 CFR part 223. End Footnote 1.] 

Citigroup proposes to consolidate its residential mortgage origination 

and servicing operations as part of a reorganization of its mortgage business. 

Citigroup currently conducts these activities through two principal subsidiaries, 

CitiFinancial Mortgage, an operating subsidiary of Citicorp Trust Bank, fsb 

(“CTB”) and CitiFinancial Mortgage, Inc. (“CMI”), an operating subsidiary of 

CitiWest. As a first step in the reorganization, Citigroup would transfer all the 

shares of CitiFinancial Mortgage to CitiWest, a federal savings bank subsidiary 

that is subject to section 23A. [Footnote 2. Begin text of Footnote 2. Specifically, 

Citigroup would cause all the shares of CitiFinancial Mortgage’s parent, CTB, 

to be distributed by its intermediate parents, Citicorp Banking Corporation and 

Associates First Capital Corporation, to Citigroup. Citigroup would then cause 

CTB to dividend the stock of CitiFinancial Mortgage up to Citigroup, 

subject to approval by the Office of Thrift Supervision. Finally, Citigroup 

would contribute the stock of CitiFinancial Mortgage through a series 

of intermediate holding companies to CitiWest. End Footnote 2.] After 

CitiFinancial Mortgage becomes a direct 
- 2 -

subsidiary of CitiWest, CitiFinancial Mortgage would merge into CMI. Within 90 

days of that merger, CitiWest would convert to a national bank and be merged into 

Citigroup’s lead subsidiary bank, Citibank, N.A. (“CBNA”), New York, New 

York, as part of Citigroup’s larger plan to consolidate its insured depository 

institutions. 

CitiFinancial Mortgage, which originates, services, and holds 

residential mortgages and mortgage-related assets, was transferred to CTB as an 

earlier step in the process of Citigroup’s consolidation of its mortgage operations. 

In connection with that transfer, the Board granted Citigroup’s request for an 

exemption from section 23A and Regulation W, and Citigroup committed to 

compensate CTB for any losses associated with the transferred assets for a period 

of five years. Citigroup has represented that CitiFinancial Mortgage and its 

successor CMI will track the assets that were transferred to CTB as part of that 

transaction, and Citigroup will continue to make cash contributions to the parent 

insured depository institution of CitiFinancial Mortgage on a quarterly basis for 

those transferred assets that become low-quality assets each quarter for the 

remainder of the five-year period (consistent with its earlier commitment). 

[Footnote 3. Begin text of Footnote 3. Citigroup would make any such cash 

contributions (i) to CitiWest while CitiFinancial Mortgage, or its successor, 

CMI, is a subsidiary of CitiWest and (ii) to CBNA after CitiWest is merged 

into CBNA. End Footnote 3.] 

Section 23A and Regulation W limit the amount of “covered 

transactions” between a bank (including a federal savings bank) and any single 

affiliate to 10 percent of the bank’s capital stock and surplus and limit the amount 

of covered transactions between a bank and all its affiliates to 20 percent of the 

bank’s capital stock and surplus. “Covered transactions” include a bank’s 

purchase of assets from an affiliate and a bank’s extension of credit to an affiliate. 

The statute and regulation also require a bank to secure its extensions of credit to, 

and certain other covered transactions with, affiliates with prescribed amounts of 

collateral. In addition, section 23A and Regulation W prohibit a bank from 

purchasing low-quality assets from an affiliate. 
- 3 -

Regulation W provides that a bank’s acquisition of a security issued 

by a company that was an affiliate of the bank before the acquisition is treated as a 

purchase of assets by the bank from an affiliate if (i) the company becomes an 

operating subsidiary of the bank as a result of the transaction and (ii) the company 

has liabilities at the time of the acquisition. [Footnote 4. Begin text of Footnote 4. 

See 12 CFR 223.31(a). End Footnote 4.] CitiFinancial Mortgage is currently 

an affiliate of CitiWest, would become an operating subsidiary of CitiWest 

immediately after the reorganization, and would have liabilities at the time of the 

reorganization. Accordingly, Citigroup’s transfer of all the shares of CitiFinancial 

Mortgage to CitiWest would be an asset purchase subject to the quantitative and 

qualitative limitations of section 23A and Regulation W. For purposes of 

Regulation W, the value of the covered transaction would be approximately 

$17.3 billion -- the total liabilities of CitiFinancial Mortgage at the time of the 

reorganization. [Footnote 5. Begin text of Footnote 5. See 12 CFR 223.31(b). 

End Footnote 5.] 

To accomplish the reorganization, Citigroup has requested an 

exemption from section 23A and Regulation W to permit CitiWest to acquire all 

the shares of CitiFinancial Mortgage. Section 23A and Regulation W specifically 

authorize the Board to exempt, in its discretion, transactions or relationships from 

the requirements of the statute and regulation if the Board finds such exemptions to 

be in the public interest and consistent with the purposes of section 23A. 

[Footnote 6. Begin text of Footnote 6. 12 U.S.C. section 371c(f)(2); 

12 CFR 223.43(a). End Footnote 6.] 

The Board has approved exemptions under section 23A for one-time 

asset transfers that were part of a corporate reorganization and structured to ensure 

the quality of the transferred assets. [Footnote 7. Begin text of Footnote 7. 

See, e.g., Board letters dated November 22, 2005, to Robin J. Maxwell, Esq. 

(The Royal Bank of Scotland Group plc); May 14, 2004, to James E. Scott, Esq. 

(Citigroup); and February 10, 2004, to David Teitelbaum, Esq. (Merrill Lynch). 

End Footnote 7.] As in previous cases, the proposed transaction in this case is 

part of a one-time corporate reorganization. Citigroup is consolidating its 

residential mortgage origination and servicing business into CitiWest. 

In addition, this transaction is, in substance, a transfer of assets between 

two insured depository institutions that are wholly owned by Citigroup. 

Thus, the transaction does not introduce new assets into the federal deposit 

insurance system. Citigroup expects this exemption to enhance the efficiency 

of its lending programs and to contain or reduce its operating expenses. 
- 4 -

As part of this transaction, Citigroup proposes to transfer 

approximately $561 million in low-quality assets to CitiWest. Section 23A and 

Regulation W prohibit a bank from purchasing low-quality assets from an affiliate. 

Under Board precedent, however, CitiWest would not be viewed as purchasing any 

low-quality assets from an affiliate as part of the proposed reorganization because 

Citigroup has committed to transfer approximately $561 million in cash to 

CitiWest to offset the low-quality assets before or at the time of the transfer of 

CitiFinancial Mortgage to CitiWest. [Footnote 8. Begin text of Footnote 8. 

See Board letters dated December 22, 2004, to Winthrop N. Brown, Esq. (HSBC 

Bank); and February 27, 2003, and August 28, 2001, to Carl Howard, Esq. 

(Citigroup). End Footnote 8.] 

Citigroup also has made the following commitments as part of this 

exemption request: 

1. Until CitiWest is merged into CBNA, Citigroup will make quarterly 

cash payments to the parent depository institution of CitiFinancial 

Mortgage equal to the book value plus write-downs taken by the 

parent depository institution of CitiFinancial Mortgage of any 

transferred assets that become low-quality assets during the quarter. 

[Footnote 9. Begin text of Footnote 9. The merger of CitiWest into CBNA will 

be reviewed by the Office of the Comptroller of the Currency under the Bank 

Merger Act (12 U.S.C. section 1828(c)). As discussed above, with respect to the 

assets held by CitiFinancial Mortgage at the time it was transferred to CTB, 

Citigroup will continue to make quarterly cash contributions to the parent insured 

depository institution of CitiFinancial Mortgage for any of those assets 

that become low-quality each quarter for the remainder of the five-year 

period. End Footnote 9.] 

2. Before the purchase of assets is consummated, CitiWest’s directors 

will review and approve the transaction. 

In addition, the Federal Deposit Insurance Corporation and the Office 

of Thrift Supervision have informed the Board that they have no objection to the 

proposal. In light of these considerations and all the facts you have presented, the 

reorganization transaction appears to be consistent with safe and sound banking 

practices and on terms that would ensure the quality of the assets transferred. 
- 5 -

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, CTB, CitiWest, and CitiFinancial Mortgage with all the commitments 

and representations made in connection with the exemption request. These 

commitments and representations are deemed to be conditions imposed in writing 

in connection with granting the request and, as such, may be enforced in 

proceedings under applicable law. This determination is based on the specific facts 

and circumstances surrounding the proposed transaction and may be revoked in the 

event of material change in those facts and circumstances or failure by Citigroup, 

CTB, CitiWest, or CitiFinancial Mortgage to observe its commitments or 

representations. Granting this exemption does not represent a determination 

concerning the permissibility of any other transactions engaged in by Citigroup, 

CTB, CitiWest, or CitiFinancial Mortgage that are subject to section 23A or 

Regulation W. 

Sincerely yours, 

(signed) 

Robert deV. Frierson 

Deputy Secretary of the Board 

cc: Federal Reserve Bank of New York 

Federal Deposit Insurance Corporation 

Office of Thrift Supervision