Citigroup Earnings Wiped Out by Tax Charge -- 3rd Update

Citigroup Inc. said Tuesday that it lost $18.3 billion in the fourth quarter, its earnings wiped out by a $22 billion charge related to the new tax law.

While the law is expected to help Citigroup and other large U.S. banks over time, it is obscuring this quarter for many with large one-time costs. At Citigroup, that led to the largest quarterly loss ever, which amounted to $7.15 per share.

The tax law also dampened the results of JPMorgan Chase & Co. when it reported last week and is expected to hurt other banks in the fourth quarter as well. But its effect will be deeper at Citigroup, whose tax-related charges are expected to be among the largest of any U.S. company this quarter.

Without the tax charge, the bank would have made $1.28 per share, beating the $1.19 expected by analysts polled by Thomson Reuters. In the quarter that ended a year ago, the bank earned $3.57 billion, or $1.14 per share.

Revenue rose to $17.26 billion from $17.01 billion a year ago. Shares rose 0.9% to $77.54 in morning trading.

In a call with reporters, Chief Financial Officer John Gerspach praised the new tax law as a stimulus both for the bank and its clients. "I think there's a great opportunity for the economy to grow," Mr. Gerspach said.

He brushed off the tax charge as a temporary bump in the road. "It's something we think we can quickly overcome," he said, "and it's not a headwind that causes us to alter any of our existing plans."

The bank run by Chief Executive Michael Corbat already had warned Wall Street about the impact of the tax law and the looming loss, saying last month that it expected to take a hit of about $20 billion to profits this quarter. That was before the tax law was completed.

The $22 billion tax hit reported Tuesday comes mostly from writing down the bank's huge pile of deferred-tax assets. Those are past tax credits and deductions that companies can use to defray future tax bills. At the end of the third quarter, Citigroup had a net of about $45.5 billion in deferred-tax assets that it is working through. That is more than other banks because Citigroup generated huge losses in the financial crisis.

Mr. Gerspach said Tuesday that he expected the new tax law would slash the amount of deferred-tax assets to about $23 billion.

About $3 billion of the $22 billion tax charge came from the newly enacted, one-time charge on U.S. companies' overseas earnings. Citigroup is more focused on overseas markets than some of its peers.

Overall, 2017 was a relatively quiet year for Citigroup, missing some of the missteps and scandals that had plagued it in the past.

Mr. Corbat, the CEO since 2012, is focused on returning more capital to shareholders and improving profitability metrics such as return on equity. While there was no profit in the fourth quarter because of the tax charge, on an adjusted basis, Citigroup said return on equity came in at 6.5%. The bank said Tuesday that it still expects to return $60 billion to shareholders through 2020, a goal it laid out for investors in July.

Trading revenue, a profit engine for many of the biggest U.S. banks, fell 19% to $2.9 billion from $3.6 billion a year ago. That was in line with what Mr. Gerspach predicted last month, when he said year-over-year trading revenue would be down by a high-teens percentage. Last week, JPMorgan reported a drop in trading revenue that amounted to 17% after adjusting for one-time charges.

Equities-trading revenue fell 23%. The bank said that was largely driven by a derivatives loss of $130 million related to a single client. JPMorgan confirmed last week that it had suffered a loss as high as $273 million on a margin loan to Steinhoff International Holdings NV, a South African retail company dealing with an accounting scandal. Mr. Gerspach declined to comment in response to repeated questions about whether the Citigroup loss also came from Steinhoff.

"There was a margin loan and some derivatives associated with it," Mr. Gerspach said. "We needed to seize the margin and that caused a credit event....It's pretty simple."

Quarterly profit at the consumer bank rose 9%, driven by the Asia business. Profit at the institutional bank, which includes trading and investment banking, fell 7%. Expenses were flat.

Citigroup has been investing heavily in its credit card unit, including new rewards programs and marketing, and is facing questions from investors who want to know when that will start paying off. Revenue from Citigroup-branded cards in North America increased 1% over the year.

Longer term, the tax changes are expected to create a windfall for Citigroup and other banks by slashing the overall corporate tax rate to 21% from 35%.

Write to Christina Rexrode at

(END) Dow Jones Newswires

January 16, 2018 10:28 ET (15:28 GMT)