Seeing Past Citigroup's Big Loss

Andrew Cummings
January 16, 2018

Citi made a loss of $18.3 billion for the quarter owing to a $22 billion charge related to December's change in the USA tax regime.

In all, $19 billion of the massive charge was related to Citigroup's deferred tax assets, the largest amassed by any US bank. Banks have long paid some of corporate America's highest effective tax rates, which means they benefit more when rates are reduced.

Net losses for the final quarter of 2017 were $18.3 billion, or $7.15 per share, due to a $22 billion charge stemming from re-measurement of tax-deferred assets under the new tax law and repatriation of foreign earnings, the company said in a statement. Investment-banking revenue rose 10 percent to $1.24 billion. They are basically credits it could have used to pay future income taxes.

Citigroup, in particular, had a large amount of these credits on its balance sheet because the bank came dangerously close to failure in 2008 and required government intervention to keep it afloat. Bank of America Corp and Goldman Sachs Group Inc plan to report fourth-quarter results on Wednesday, with Morgan Stanley expected to report on Thursday. It forces them to take one-time hits on earnings held overseas and changes the treatment of deferred tax assets, both of which affect Citigroup in particular.

Among the key positive metrics: Citi's overall year-on-year loan growth at 7 percent (or 5 percent excluding the impact of currency movements) is stronger than the 4 percent reported by JPMorgan Chase & Co. and decline of roughly 1 percent posted by Wells Fargo & Co.

Citigroup also took a $3 billion charge for foreign earnings it will bring back to the U.S. Unlike most of the other big banks, Citi has substantial foreign businesses — particularly in Mexico and Asia — and had been holding those earnings overseas waiting for favorable tax treatment.

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

Bond trading revenue fell 18 percent due to ongoing weakness in volatility, while equity markets revenue was down 23 percent because of $130 million worth of losses on a derivatives trade with one client. Like other banks, Citi has been dealing with abnormally quiet financial markets for most of 2017, which kept investors from trading and made it more hard for Citi traders to take advantage of big swings in asset prices. Without it, Citigroup's quarterly earnings and revenue exceeded analysts' estimates.

Stock: Shares rallied 0.9% to 77.52 in morning trade on the stock market today.

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