RW - Shareholder Initiatives: Citigroup

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Status

Annual meeting held Apr. 15, 2003

% voting YES: 7%

Shareholder resolutions face a variety of obstacles. For this reason, it is considered significant if a resolution garners at least 5% of the vote. Votes over 10% indicate exceptional shareholder support for an issue.

Filers of "social-issue" resolutions generally don't expect their resolution to receive a majority vote and be adopted by management. Rather, filers use these resolutions to get management's attention, and to raise the issue with other shareholders. They hope to achieve a vote sufficient to allow them to return the next year.

According to SEC rules, a resolution must receive 3% of the vote the first year it is filed, 6% in year two and 10% thereafter in order to be included on the proxy the following year.

Citigroup

Executive Pay and Predatory Lending

WHEREAS, Citigroup is the second largest subprime lender in the United States, controlling 9 percent of the market. Citigroup’s consistently profitable and expanding consumer finance business, which includes subprime lending, is vital to our company’s future.

Though Citigroup is a leader in subprime lending, it has not been the leader in responding to predatory lending abuses that plague the subprime industry. In September 2002, Citigroup settled a Federal Trade Commision complaint for a record $215 million. This settlement pertained only to the activities of Associates First Capital, which Citigroup acquired in 2000. Citigroup continues to face lawsuits alleging predatory lending within the company’s home-grown Citifinancial business.

The subprime lending industry continues to engage in controversial business practices. According to Freddie Mac and Fannie Mae, between 30% and 50% of all subprime customers either currently qualify for lower-cost prime rate loans or would qualify within two years. Citigroup acknowledges this problem and has instituted its Referral-Up program in response. Through Referral-Up, sub-prime borrowers who qualify for prime loans are referred to CitiMortgage offices. In our opinion, this program is not working since fewer than 2% of those sub-prime customers qualifying for a prime loan, using Citigroup’s own criteria, end up with a lower-cost CitiMortgage.

Industry-wide, 80% of sub-prime borrowers face prepayment penalties making it prohibitively expensive to refinance their loans to take advantage of falling interest rates. In contrast, only 2% of prime borrowers face prepayment penalties. Citigroup charges its sub-prime borrowers prepayment penalties of up to 5%, a level that fair housing activists such as the Coalition for Responsible Lending, ACORN and the Greenlining Institute label excessive and predatory.

We believe Citigroup should be a leader in eliminating predatory lending. Failing to adequately address predatory lending imperils Citigroup’s reputation and threatens shareholder value.

We believe Citigroup’s CEO should assume personal responsibility for eradicating predatory lending. We believe this is best done by linking a portion of executive pay to Citigroup’s progress in ending predatory lending. Citigroup insists that meeting corporate social responsibility standards is already one of the criteria used in determining executive compensation. However, the Board’s Compensation Committee report to shareholders provides no assessment of how well executives have met corporate social responsibility goals. Given that our CEO, Mr. Weill, has received more than $1 billion in compensation since 1990 and is among America’s most highly compensated CEOs, our company should similarly lead the nation in corporate responsibility.

RESOLVED: Shareholders request the Board to conduct a special executive compensation review to study ways to link a portion of executive compensation to ending predatory lending practices. Among the factors to be considered in this review shall be: implementation of best practices to prevent predatory lending; constructive meetings with concerned community groups; evaluation of subprime loans by outside auditors for compliance with laws and Citigroup’s internal policies; and reductions in predatory lending complaints filed with federal and state government agencies. A summary of this review will be published in the Compensation Committee’s report to shareholders.

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