Citigroup uses tax break windfall to rain profits on investors

Citigroup reports $18.3 billion loss caused by new tax law

Citigroup Inc posted an $18-billion quarterly loss on Tuesday because of charges related to a new US tax law, but its adjusted earnings beat Wall Street expectations and management signaled that the bank may soon lift financial performance targets.

JPMorgan similarly reported a 37% drop in fourth-quarter earnings on Friday because of a $2.4 billion one-time charge tied to the tax overhaul. The tax charge comes largely from write-downs of the bank's deferred-tax assets. The lowered corporate tax rate, which took effect at the start of the year, cuts the value of this benefit. 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.

Citigroup and other large US banks are expected to be the biggest beneficiaries of the law over time.

Citi's chief executive, Michael Corbat said, "While our fourth quarter results reflected the impact of a significant non-cash charge due to tax reform, the impact on our regulatory capital was much less significant". Last month Barclays said it would take a £1bn charge to profit after tax for the year, while Shell put the damage at up to £1.8bn.

Without the one-time charge, Citigroup's quarterly results would have beat analysts' estimates.

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Shares in Citi rallied 1.7 per cent in pre-market trading after the bank said it was sticking to a pledge to pay out at least $60 billion (€49bn) in capital to shareholders over three years, although as a result of the writedown the bank's loss-absorbing cushion of tier one capital will decline by about $6 billion (€4.9bn). Revenue in investment and corporate banking fell 1% to just over $8 billion, while net credit losses rose 11% from the same period a year earlier, to $1.9 billion.

And net operating income for the full year rose $1 billion to $15.8 billion.

Citi's Global Consumer Banking business revenue, which covers all retail banking and credit cards, gained 5.6% on the same period twelve months earlier, accounting for almost half of the bank's total revenue, predominantly driven by Asian and Latin American growth which each returned an 11% growth in revenue. Analysts expected revenue of $17.22 billion.

The institutional business was further dented by what the bank described as an "episodic loss" in equity derivatives totalling about $130 million.

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