Citi takes very large $22bn Trump tax hit but beats underlying earnings expectations

17 January, 2018, 03:02 | Author: Sheri Evans
  • Citigroup up 2.5% after topping estimates

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.

Citigroup, the fourth-largest USA bank by assets, said it expects to benefit in future quarters from the new tax law as its tax rate falls to about 25 percent in 2018 from 30 percent in 2017.

The latest quarter's results include an estimated one-time, non-cash charge of $22 billion, or $8.43 per share, related to the enactment of the Tax Cuts and Jobs Act, or the USA tax reform.

However, the US-lender booked a one-time charge of $22bn relating to the Trump administration's recent tax reforms, dragging the firm to a loss of $18.3bn for the three months to 31 December, versus the $3.6bn of net income it reported at the same time one year prior.

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CEO Michael Corbat said the financial impact of the tax overhaul on Citigroup's regulatory capital was "much less significant".

But banks still see long-term benefits from the tax cuts, while long-term yields have risen more than short-term yields recently, allowing banks to capitalize on the spread. The new law might also stimulate economic growth because it incentivizes companies to invest in their businesses and has led to wage hikes that could help consumers, he said.

The lender estimates its tax rate will fall from the low-30 percent range to around 25 percent in 2018, and potentially lower than that in future.

Citigroup's institutional business, which includes investment banking and trading, fell 1 percent due to weakness in trading that has also affected Wall Street peers.

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Other banks including JPMorgan Chase are also taking such hits, although Citi's is particularly big.

"Results could prove "good enough" this quarter", Instinet analyst Steven Chubak wrote in a note to clients. Global consumer banking revenue grew 6% to $8.4 billion.

Big-bank and financial earnings pick up steam this week, with Bank of America (BAC), Goldman Sachs (GS) and Charles Schwab (SCHW) set to release results Wednesday; Morgan Stanley (MS), American Express (AXP) and Keycorp (KEY) Thursday; and Synchrony Financial (SYF) Friday.

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