Citigroup Takes a $22 Billion Tax Hit, but Sees Higher Profits Ahead

  • Citigroup Takes a $22 Billion Tax Hit, but Sees Higher Profits Ahead

Citigroup Takes a $22 Billion Tax Hit, but Sees Higher Profits Ahead

Net losses for the final quarter of 2017 were $18.3 billion, or $7.15 per share, due to a $22 billion charge stemming from re-measurement of tax-deferred assets under the new tax law and repatriation of foreign earnings, the company said in a statement. Because the new tax bill lowered the corporate tax rate to 21 percent, the value of those tax-deferred assets had to be written down.

CEO Michael Corbat nonetheless praised the tax law's long-term potential for the company.

"Tax reform does not change our capital return goals as we remain committed to returning at least $60 billion of capital in the current and next two CCAR cycles, subject to regulatory approval", he said. Tax reform not only leads to higher net income and increased returns, but also serves to strengthen our capital generation capabilities going forward. The bank is facing questions from investors who want to know when that will start paying off. Revenue from Citigroup-branded cards in North America increased 1% over the year to $2.2 billion even as the company said it saw higher related costs.

Why did Citi suffer such a huge loss related to tax reform?

Citigroup wrote off $19 billion of these assets last quarter, and will still have roughly $23 billion of the credits still sitting on its balance sheet, Citigroup Chief Financial Officer John Gerspach said in conference call with reporters. Like other banks, Citi has been dealing with abnormally quiet financial markets for most of 2017, which kept investors from trading and made it more hard for Citi traders to take advantage of big swings in asset prices. The bank had to book another $3 billion loss on repatriated earnings from its overseas subsidiaries. Worldwide clients group revenue dipped 1% to $8.1 billion, as fixed income trading revenue sank 18% to $2.4 billion while banking revenue climbed 14% to $4.7 billion.

Like JPMorgan, Citigroup also was involved in a margin loan to an entity controlled by Christo Wiese, the former-chairman of Steinhoff International, whose stock has been ravaged by an ongoing accounting scandal.

Revenues from Institutional Clients Group decreased 1 percent to $8.10 billion, as continued momentum in Banking and Securities Services was offset by a decline in Markets revenues.

Corporate/Other revenues of $746 million, down 13%.

Other banks are expected to, or have already taken, similar write-downs, as they report their results last week and this week.