Citigroup faces big hit as result of tax shift

Citigroup finance chief John Gerspach said Wednesday the bank is likely to take a hit of about $20 billion to profits under the tax plans recently passed by Congress.

The charge will result from the bank writing down the value of what are known as deferred tax assets as well as the impact of changes to rules regarding the repatriation to the U.S. of profits earned in other countries.

Mr. Gerspach's comments, made at a financial-services conference in New York, build on previous guidance given by the bank that tax-code changes could result in a hit of about $15 billion if the rate was cut to 25%. Over the long term, though, any immediate hit to profits at Citigroup and other banks with these tax assets are likely to be offset by higher net income due to a lower tax rate.

Mr. Gerspach said that neither the charge, nor a resulting $4 billion decline in the bank's regulatory capital, would affect Citigroup's plan to return $60 billion to investors through 2020.

The lion's share of any charge at Citigroup -- $16 billion to $17 billion -- would come from writing down the value of the tax assets. These are akin to IOUs that can be used to pay future tax bills and are typically generated by previous losses.

Citigroup's massive losses during the financial crisis left it sitting on more than $40 billion in such deferred tax assets. A lower tax rate reduces the value of those assets because the bank will have a lower tax bill that it can use them against.

Under the plans passed by the U.S. Senate and House of Representatives -- but which must still be reconciled -- the corporate tax rate would fall to 20% from the current 35%.

Mr. Gerspach said about $3 billion to $4 billion in charges would likely result from changes in the rules around repatriation of foreign profits.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com