Citi plunges to giant $18bn loss on back of Trump tax reforms


Citigroup reported an $18.3 billion loss Tuesday, becoming the second major USA bank to have its earnings hit by the federal tax overhaul.

Citigroup, as well as Morgan Stanley and Bank of America, said they would take big charges from write-downs of deferred tax assets, which companies can use to ease their tax burden in the event of a loss.

The law, signed by President Donald Trump last month, has made fourth-quarter earnings a messy ordeal for big banks. On average, 22 analysts polled by Thomson Reuters expected the company to earn $1.19 per share.

The lender estimates its tax rate will fall from the low-30 percent range to around 25 percent in 2018, and potentially lower than that in future.

However, banks and other large US corporations expect to benefit greatly from lower taxes and other provisions in the new law over the long term.

"Tax reform does not change our capital return goals", Chief Executive Officer Michael Corbat said in the statement.

"Results could prove "good enough" this quarter", Instinet analyst Steven Chubak wrote in a note to clients.

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The latest quarter's results include an estimated one-time, non-cash charge of $22 billion, or $8.43 per share, related to the enactment of the Tax Cuts and Jobs Act, or the USA tax reform.

Excluding the effects of the tax revamp, the financial giant's net income was up four percent over the same quarter of 2016 at $3.7 billion, or $1.28 per share.

Citi was the latest Wall Street bank to report a drop in fixed income sales and trading revenues, which dropped 18 per cent year-on-year to $2.4 billion. Revenue in investment and corporate banking fell 1% to just over $8 billion, while net credit losses rose 11% from the same period a year earlier, to $1.9 billion.

Citigroup shares were up 1.6% at $78.07 in morning trading.

The increase in revenues was driven by 6 percent revenue growth in the Global Consumer Banking segment, partially offset by lower revenues in both the Institutional Clients Group and Corporate/Other segments.

But banks still see long-term benefits from the tax cuts, while long-term yields have risen more than short-term yields recently, allowing banks to capitalize on the spread. Analysts expected revenue of $17.22 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.