Citigroup reports $18B loss in quarter related to tax law

Citigroup reported one of the largest quarterly losses in its history Tuesday, and Wall Street didn’t flinch.

The New York bank says the more than $18 billion loss in the fourth quarter was related to the new Republican tax law, which lowered the value of assets it has used to offset some of its taxes and also forced it to pay taxes on profits it has held overseas. Together, the provisions translated into a $22 billion onetime charge, which wiped out all of Citigroup’s 2017 profits.

But for Citigroup, the fourth-largest U.S. bank by assets, the loss is just a temporary hiccup.

Citigroup and other large U.S. banks are expected to be the biggest beneficiaries of the law over time. But some are reporting significant onetime charges as they adjust to the new standards. Last week, JPMorgan Chase took a $2.4 billion charge in the fourth quarter due to the law.

The biggest culprit is the billions in what are known as deferred tax assets held by many banks after the financial crisis. After reporting huge losses, the banks accumulated these assets, which could then be used to pay future income taxes. Because the Republican tax law lowered the corporate tax rate from 35 percent to 21 percent, the assets are now worth less, leaving some banks to record a charge.

Citigroup wrote off $19 billion of those assets in the fourth quarter.

The bank, which has sig-

nificant operations overseas, also took a $3 billion charge on foreign earnings it will bring back to the United States and pay taxes on.

But Citigroup and its shareholders appear focused on the long-term potential windfall from the Republican tax bill. The law will help lower the bank’s tax rate from about 30 percent to 25 percent, potentially saving Citigroup billions over the next few years, industry analysts have said. It will also lead to higher profits and increased returns, according to Citi Chief Executive Officer Michael Corbat.

“Tax reform is a clear net positive for Citi and its shareholders,” Corbat said in a call with analysts.

Without the one-time charge, Citigroup’s quarterly results would have beat analysts’ estimates. The bank’s quarterly profit, excluding the one-time charge, was $3.7 billion, compared with $3.6 billion for the same period in 2016. Quarterly revenue increased about 1 percent to $17.3 billion. The bank is also still on track to return $60 billion to shareholders through 2020.

Citing the lower tax rates, Ken Leon of CFRA Research raised his profit expectations for the bank. Citigroup won’t benefit as much from the lower tax rate as some of its competitors

because it has significant overseas operations in places where the corporate tax rate is already lower, including Asia and Mexico, he said.

“That means that Citi is going to have to look to execution,” said Leon, adding that the bank’s credit card business could help drive growth.

Citigroup and its rivals have spent weeks reviewing their finances and briefing investors on what’s to come after Republicans enacted the tax plan in December that’s particularly lucrative for the industry. Banks have long paid some of corporate America’s highest effective tax rates, which means they benefit more when rates are reduced.

Banks face competing demands

for a share of the gains — potentially raising pay for staff, cutting prices for customers or putting more into the pockets of shareholders. Wells Fargo & Co. executives said last week they’ll boost donations to a philanthropic foundation, while JPMorgan leaders said they’re working on a plan to share the tax savings. Citigroup only called out the cash coming investors’ way, and executives later confirmed that they haven’t announced plans to give employees a raise.

Information for this article was contributed by staff members of Bloomberg News.