Vikram Pandit, CEO, Citigroup
New York, N.Y.
As prepared for delivery
Thursday, May 12, 2011

Remarks by CEO Vikram Pandit at the New York State Association for Affordable Housing Opening Session

Thank you, Richard.

And thank you all for working so tirelessly to provide New Yorkers with quality, affordable housing. Especially during this time of economic difficulty, the public and private sectors need to combine resources, knowledge and experience to help as many Americans as possible find good housing and realize the American dream.

At Citigroup, this is a challenge we take seriously. We consider our work to expand access to housing and to support public projects to be part of our commitment to Responsible Finance. Before we enter into any transaction, we ask ourselves three questions:

1. Is it in the best interest of our customer?
2. Is it systemically responsible?
3. And does this create economic value?

The answer to each must be "yes." And the answer is "yes" in the case of all the projects that I want to discuss with you today.

Responsible finance is a core part of Citi's broader transformation over the last three years. Our priority in restructuring the company has been to get back to the basics of banking—serving the real economy. And there is no more basic or fundamental banking responsibility than lending. Our commitment to responsible finance and to the basics of banking means supporting projects that serve the public.

Last year alone, our company provided more than $5.5 billion to projects and communities all across the country, including more than $3 billion in lending to support affordable housing and community development, as well as $2.5 billion in community development investments. Of that amount, Citi invested more than $2 billion in the preservation and development of affordable rental housing in this city and this state, our home for almost 200 years.

Also last year, our Public Finance Department underwrote $60 billion in municipal bonds nationally—$7 billion of that in New York State, where we were the number one underwriter of public finance projects.

I cite these numbers not to boast but to demonstrate how committed Citi is to affordable housing and public finance—both because we know it's a good business opportunity and because we believe that it's important to invest in the communities in which we live and work. We've maintained that commitment throughout the financial crisis and reorganized our business to better serve communities in New York and around the country.

Today, I'd like to talk to you about three things. First, I see some potential policy concerns on the horizon that may impact our—and other banks'—ability to promote affordable housing. Second, I'd like to explain the way that Citi has reorganized our efforts to practice public finance. And third, I'd like to briefly describe some of our most exciting projects.

As to the first: it's no secret that government support for affordable housing is critical to the success of many of the most crucial projects. It's also no secret that the recession has hurt revenues and put additional strain on budgets at all levels.

The economic growth model that prevailed before the crisis resulted in the accumulation of too much public and private debt. The country is now working through ways to address that issue.

I don't have a simple solution. But I do hope that any enacted reforms will prioritize growth—and encourage investment in our communities. Along with this group, Citi will continue to argue forcefully that affordable housing should continue to be a priority for Washington, Albany and City Hall. I especially commend New York State and the Bloomberg Administration for their support of the affordable housing market during the recession.

Another policy challenge is the latest round of regulatory reform—specifically, new rules that require higher capital levels for banks that might further tighten credit.

In the wake of the crisis there was a rush to impose new financial regulation unlike anything we've seen since the Great Depression. There is no question the rules governing the global financial system were in need of real reform. We were running high-speed trains on a rail system built more than 60 years ago.

In addition to outdated rules, the industry strayed from traditional products and the consistent underwriting standards that were historically part and parcel of both affordable housing projects and the mortgage industry as a whole. As real estate prices continued their upward trend, and as government continued to prioritize homeownership, terms and conditions eroded. We all know the result.

Citi supported these reforms. That said, many of the new rules may have unintended negative consequences for financial inclusion—including our combined efforts to provide affordable housing.

Requiring banks to hold more capital than is necessary to protect the system will constrict their ability to lend. Similarly, the way that some new regulations will require banks to calibrate risk will force banks to lend to borrowers who need credit the most at much higher interest rates—or not at all.

Fortunately, the book is not closed on regulatory change. The Dodd-Frank bill is law but the rules that implement it are still being written. The Basel Committee on international banking reform continues to deliberate. I believe that the right balance will be struck between systemic safety and financial inclusion—if we all make our voices heard.

At Citi we consider this challenge in its entirety a call to action for our industry. That's why we have taken action to restructure our business—including our overall community investment operations.

That gets to my second point: the way that Citi has streamlined our own efforts in this area. Historically, the financing of affordable housing has been a patchwork process. The resulting inefficiencies hampered the banking industry's ability to provide the most credit possible at the best possible prices.

In response, three years ago Citi put under one roof all those parts of our company that lend to affordable housing projects and invest in communities. Citi Community Capital makes construction loans, finances long-term lending for affordable housing projects, manages our Low Income Housing Tax Credit Equity and New Market Tax Credits, and also lends to CDFIs. It's all one team with one bottom line and risk infrastructure.

This streamlining has allowed us to work effectively on unique transactions—which brings me to my third and final point. We've embarked on a range of terrific projects in recent years.

In 2010, the New York City Housing Development Corporation executed a unique, highly structured transaction to generate funding for project renovation and to secure an additional $70 million in annual operating subsidies from the federal government. Citi worked with NYCHA, HPD, and HDC to close the largest—both in terms of units financed and bond amount—and most complex single-project multifamily rental transaction ever structured. The transaction was financed by Citi with a tax credit equity contribution of $210 million, the commitment to purchase $366 million of private activity bonds, and the issuance of over $450 million in letters of credit.

Citi Community Capital is also the equity sponsor behind the $100 million New York Affordable Housing Preservation Fund, managed by our friends at L&M Development. The Fund's goal is to help finance the preservation and rehabilitation of more than 2,000 affordable apartments in New York City and the surrounding communities during the next three years.

And just two miles from here, on 25th Street and 9th Avenue, the Elliott Chelsea—a 22-story, 168-unit mixed income rental building with ground floor retail—is being constructed with the help of Citi Community Capital's diverse set of resources and relationships. As Freddie Mac's mortgage banker, Citi is also providing a $41.4 million construction period letter of credit.

Our investment in New York isn't limited to the five boroughs. Citi is also providing a $6.3 million construction loan and is investing $10.8 million in low-income housing tax credit equity rehabilitation for two buildings that make up the YWCA Residence for Women in White Plains. The Residence is the only permanent housing residence for women in Westchester County that offers full time support to women who are economically disadvantaged and coping with the effects of domestic violence, substance abuse, mental and physical illness.

And our commitment extends beyond housing. We are the lead underwriter for the Buffalo Public Schools Reconstruction Program—a $1.4 billion capital improvement initiative that is transforming Buffalo's public schools into 21st-century learning centers. This ambitious program became a reality when Citi was selected to develop an entirely new way of financing school construction in New York State. The results have been extraordinary, as Buffalo has completed remarkable structural and technological upgrades in nearly every school in the district. By 2013 nearly every child in the district will be learning in a beautifully renovated school.

Citi is involved with countless other development projects large and small—too many to discuss here. But before closing, there is one more I'd like to mention—our work to help rebuild lower Manhattan following the terrorist attacks almost ten years ago.

We were selected by the Port Authority of New York and New Jersey to lead the landmark financing of One World Trade Center—the Freedom Tower—plus the retail components of the World Trade Center site, and other site-wide infrastructure. If you've seen the plans for this project, you know how impressive they are—New York's tallest skyscraper topping out at 1,776 feet, 3 million square feet of office space, a grand public lobby, and much more. We have been working with the Port Authority on financing this project since our appointment as lead underwriter in 2008 and we've issued $1.6 billion in bonds so far. We've also donated $10 million toward the construction of the 9/11 memorial. As a New York-based bank, we are thrilled to be a part of this effort—and I can't wait to see the finished product.

I'm grateful to have been asked to speak with you today, and to be able to share with you my thoughts on what we all need to do to continue providing New Yorkers with homes they love and can afford.

Thank you, once again.

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