Analysts polled expected earnings to come in at $1.19. 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.
"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". "Citigroup and other large US banks are expected to be the biggest beneficiaries of the [tax] law over time", The Washington Post said.
Citi blamed the loss on a $22bn one-off hit incurred by the US Tax Cuts and Jobs Act, passed into law by President Trump just before Christmas. "Tax reform not only leads to higher net income and increased returns, but also serves to strengthen our capital generation capabilities going forward". 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. The bank already plans to return at least $60 billion worth of capital to investors through stock buybacks and dividends.
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.
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JPMorgan Chase, the biggest U.S. bank, said on Friday it had taken $2.4 billion in one-time tax expenses, primarily for income earned overseas in the past.
Citigroup reported one of the largest quarterly losses in its history Tuesday, and Wall Street didn't flinch. The U.S. lender, which has total assets of $1.8 trillion, said revenue increased by 1 percent year on year, to $17.3 billion.
However, fixed income markets revenue decreased 18 percent due to continued lower volatility in the quarter as well as the comparison to a more robust trading environment in the prior year period as a result of the USA elections. The bank also said its equity trading division was hurt by $130 million related to a "single client event".
However, accounting procedures require Citigroup and other banks to write down previous tax credits and deductions that they have used to lessen future federal tax payments.