"Tax Plan May Cost Citigroup $20 Billion"

Citigroup CFO warns of a big hit to earnings if the GOP tax plan passes. Deferred income is the primary reason.

During a Wednesday presentation, John Gerspach, Citigroup CFO warned Citi Could Face $20 Billion One-Time Hit.

The bank would take a big hit from writing off deferred tax assets it has held on its books, roughly $16 billion to $17 billion, John Gerspach said during a question-and-answer session at a Goldman Sachs banking conference in New York. And it would take a $3 billion to $4 billion hit from paying taxes on money it had held overseas.

A deferred tax asset is actually a benefit for a company, allowing it to claim tax relief in subsequent years. But Citi planned those assets for a 35 percent tax rate. If the rate drops to the GOP's target of 20 percent, the assets are worth less to Citi, and it has to write off the difference.

Much has been written about the benefits to corporations from the tax bill, including that lower 20 percent tax rate, but less has been understood about the consequences as companies are forced to shift how they have done their tax planning.

Citigroup Daily

There was almost no market reaction. The long-term benefit more than offsets the one-time hit.

It will be interesting to see if other companies have similar one-time issues.

Mike "Mish" Shedlock

Comments
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El_Ted0
El_Ted0

@FlyOver_Country, I've been calling it the Republican Obamacare. A single party, with a small political window, imposing it's will on the country against the wishes of the country and doing so hastily.

Hammeringtruth1
Hammeringtruth1

It's about tIme Citi started paying back the taxpayers and and all of those that have paid their usurious loan rates.

thimk
thimk

The reduction in the pass thru rate will incentivize high wage earners to seek their compensation through these structures. (i.e. a shift from w-2 taxes to to sole proprietorships, partnerships, and limited liability companies taxes) .

FlyOver_Country
FlyOver_Country

It’s the GOP version of the ACA. When you rush legislation, you get what you deserve.

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