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38 CITIGROUP REPORTS $3.9B IN QUARTERLY PROFITS Citigroup profits outperformed analysts' expectations for the first quarter, thanks to declines in expenses and net credit losses. e bank reported profits of $3.9 billion in Q1, just barely edging out last year's income of $3.8 billion. Gains were more impressive when put next to Q 4's earnings, which disappointed at $2.5 billion. e gain came despite a year-over-year drop in total revenues, which were down 1 percent to $20.1 billion as a result of declines in fixed-income markets revenues and lower refinancing activity. Commenting on the earnings report, Citi CEO Michael Corbat said, "Despite a quarter that was difficult for our company, we delivered strong results." Indeed, the bank did see its share of setbacks. In early April, Citi offered a $1.13 bil- lion settlement to resolve claims on residential mortgage-backed securities, taking a charge of $100 million in its first-quarter results. Only weeks before that, the Federal Reserve shocked the bank by denying its plans to repurchase stocks and increased dividends based on objections over its capital planning processes. "Very cognizant of our shareholders' desire to see a sustainable return of capital, we are engaged with the Fed to better understand their expectations regarding the CCAR [Comprehensive Capital Analysis and Review] process," Corbat said, adding that Citi remains committed "to bringing our capital planning process to the highest possible standards." For all the difficulties the company faced, there were a few bright spots. According to the Q1 report, operating expenses came to $12.1 bil- lion, 1 percent lower than the prior-year period, driven by efficiency savings and a decline in Citi Holdings assets (partly offset by higher regulatory costs and legal expenses). Meanwhile, Citi reported net credit losses of $2.4 billion, a 15 percent decline year-over- year, and a loan loss reserve release of $673 million (compared to $650 million), boosting overall profits. URBAN AREAS LEAD IN HOME PRICES; SUBURBS GROW FASTER As the housing market inches further toward recovery, a curious dichotomy has arisen between urban and suburban growth. According to Jed Kolko, chief economist at Trulia, while cities are outpacing the suburbs in price gains, the suburbs are leading the way in population growth. According to Kolko, citing Trulia's joint Price Monitor and Rent Monitor reports, asking prices for homes in densely populated (i.e., high-rise- rich) and urban settings are still rising as the spring buying market catches its stride. Asking prices typically lead actual sale prices by about two months, meaning today's asking prices should be a good indicator of what typical sale prices will be as housing enters the summer. Trulia found that month-to-month asking prices nationally in urban markets rose 1.2 percent in March. Quarter-to-quarter, prices rose 2.9 per- cent in March, reflecting three straight months of solid month-over-month gains. Both calculations were seasonally adjusted. More encouraging is that asking prices are up a full 10 percent since last year, rising in 97 of the 100 largest metros. Only three metro areas—Al- bany, New York; and Hartford and New Haven, Connecticut, showed a drop in asking prices year-over-year. It's the suburbs, however, where population is growing most—something Kolko admits can seem rather strange. After all, he said, "locations with stronger demand should have both higher price growth and more population growth." And there has been greater demand for urban living since the construction bubble burst in 2009 and badly damaged new home construction in subur- ban areas. e answer, however, lies in the supply. "Suburbs can have faster household growth but smaller price gains because it's easier to build new housing in suburbs than in dense urban neighborhoods," Kolko said. "New construction accommodates population growth while taking pressure off rising prices." It only seems as if cities have the edge in housing recovery, he says, because home prices in high-density high-rise neighborhoods in cities such as New York, Chicago, and San Francisco have risen faster than those for other urban and suburban areas. It also appears to have the lead because construction recovery has been disproportionately urban. In 2013, apartment building construction hit a 15-year high, but single-family home con- struction is still considerably below normal levels. at means many dense cities where much of the housing stock is comprised of rental apartments have seen a construction boom relative to their local normal level of construction, Kolko says. "Population growth since the housing bust has slowed most in the bottom quartile of coun- ties, which are largely rural areas, not suburbs," Kolko said. "e suburbs are far from over." "I am well aware, and regularly express my belief, that conservatorship should never be viewed as permanent or as a desirable end state and that housing finance reform is necessary. However, Congress and the Administration have the important job of deciding on housing finance reform legislation, not FHFA." –Mel Watt, Director, Federal Housing Finance Agency VERBOSITY Since the financial crisis began in September 2008, approximately 5 million foreclosures have been completed, according to CoreLogic. KNOW THIS

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