Back to top

Image: Bigstock

Citigroup (C) Might Record $12B Charge on U.S. Tax Rate Cut

Read MoreHide Full Article

According to John Gerspach, Chief Financial Officer (CFO) of Citigroup Inc. (C - Free Report) , the U.S. lender might need to record $12 billion charge in profits if the federal corporate tax rates under President Donald Trump decline to 25% from the current rate of 35%. However, such charge can be around $4 billion if the rate reduces to 28% under a scenario where tax cuts are applied on more limited basis. Such charge will be recorded to reflect reduced values for the bank’s deferred tax assets (DTAs).

Notably, about $7 billion of the DTAs are excluded from the bank's regulatory capital. Therefore, write off of more than this amount would impact the regulatory capital.

Gerspach along with CEO Mike Corbat has used deferred tax assets to increase net earnings more than the bank’s regular operations’ income. Notably, Citigroup has $45 billion of deferred tax assets, out of which only about $10 billion have been used in the last four years.

"There are a lot of moving pieces," Gerspach said. "To the extent these changes were implemented over time, those impacts would likely be lower."

Trump plans to reduce the rate to 15% from the existing 35% which seems to be high resulting in lower domestic investment. The tax cuts are expected to create more jobs and aid economic growth in U.S.

Separately, at Bank of America Merrill Lynch Financials Conference 2016, Citigroup President and CEO of Institutional Clients Group James Forese said the capital markets business in the fourth quarter is expected to be "meaningfully better" than a year earlier, but down sequentially due to seasonality.

Currently, Citigroup carries a Zacks Rank #3 (Hold).

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

Stocks Worth Considering

The Bank of New York Mellon Corp. (BK - Free Report) with a Zacks Rank #2 (Buy) has been witnessing upward estimate revisions for the last 30 days. So far this year, the company’s share price has been up more than 17.7%.

Comerica Inc. (CMA - Free Report) has been witnessing upward estimate revisions for the last 30 days. Further, the stock has risen over 42.9% so far this year. It currently sports a Zacks Rank #2.

Fifth Third Bancorp (FITB - Free Report) has been witnessing upward estimate revisions for the last 30 days. Also, the company’s shares have surged nearly 27.4% so far this year. It currently sports a Zacks Rank #2.

Zacks' Top Investment Ideas for Long-Term Profit

How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>

Published in