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Barclays (BCS) to Record $1.3B Charge in Q4 From the Tax Act

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Some of the major foreign banks are expected to be hurt in the near term by the recent U.S. corporate tax overhaul. Now, joining this list is Barclays (BCS - Free Report) .

The bank is anticipated to record a one-time charge of $1.3 billion (£1 billion) in fourth-quarter 2017 due to the write-down of deferred tax assets (DTAs). Banks usually pay taxes in advance with an aim to claim tax relief in difficult years and treat them as DTAs. Since the U.S. corporate tax rate has been reduced to 21% from 35%, the assets have lost value and so have to be written off.

UBS Group (UBS - Free Report) , Credit Suisse Group AG , Bank of America (BAC - Free Report) and Citigroup are some of the major global banks that are anticipated to record significant charges related to DTA write-downs from the new tax act.

For the nine months ended Sep 30, 2017, Barclays incurred a net loss of £628 million, mainly owing to the write-offs resulting from its exit from Africa. This one-time charge is likely to push the company further into the red. Additionally, the bank estimates the charge to lower its common equity tier 1 capital ratio by 20 basis points.

Nonetheless, Barclays projected that the lower tax rate will have a positive impact on its future earnings in the United States, while the Base Erosion Anti-Abuse Tax (BEAT) might offset this benefit to some extent. BEAT has been designed to stop global companies from abusing the tax code.

The bank further added, “Due to the uncertain practical and technical application of many of these provisions, it is currently not possible to reliably estimate whether BEAT will apply and if so, how it would impact Barclays.”

Over the last few years, Barclays has significantly transformed its operations with the goal to simplify business and boost shareholders’ return. Nonetheless, the company has been facing pressure on revenues owing to weak capital market performance, low interest rates and uncertainty related to Brexit.

This has also weighed on its price performance. Barclays’ shares have lost 1.6% so far this year against industry’s rally of 21.8%.



Currently, Barclays carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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