Citigroup will be in a better position to return cash to investors under President Donald Trump's tax overhaul, its chief financial officer said, despite a $22 billion charge at the end of last year that led to a quarterly loss.
The plan, approved by Congressional Republicans in December and signed into law by Trump, reduces the top corporate tax rate to 21 percent from 35 percent, forcing the New York-based lender to mark down by $19 billion the tax break it would receive from prior-year operating losses it can claim in later years.
Citi also paid a $3 billion one-time levy on overseas holdings under a provision in the Tax Cuts and Jobs Act that lets companies bring the assets back to the U.S. without penalty after a 15.5 percent assessment on cash and 8 percent on everything else. Both provisions are designed to buoy economic growth, a key part of Trump's platform, by enabling U.S. corporations to invest in expansion and, at the same time, luring foreign firms here.
"There's a great opportunity for the economy to grow, and therefore, for us to help our clients, both corporate and consumer, in their response to that economic growth," Chief Financial Officer John Gerspach told reporters on Tuesday. "From a Citi point of view, clearly, tax reform leads not only to higher net income and increased returns but serves to strengthen our capital generation capabilities going forward."
While the tax plan's up-front cost led to an $18.3 billion net loss in the three months through December, the bank remains optimistic about its future benefits, Gerspach told reporters. Citi's effective tax rate, for example, will drop from 33 percent to 25 percent this year.
"This will drive a material improvement in Citi's overall return," he said. "We'll be in an even better position to improve return on and return of capital going forward. We remain firmly on track to achieve the capital return targets" of $60 billion through 2019, if regulators approve after annual stress tests, he said.
His optimism mirrors that of Citi competitors such as Wells Fargo and JPMorgan Chase, the latter of which took a $3.7 billion hit on assets parked overseas.
Citi, which at one point held more than $55 billion in so-called "deferred tax assets" may be hit the hardest of any of the largest U.S. banks by the reduction in their value. The provision may lower earnings by $1.7 billion at Goldman Sachs and $3 billion at Bank of America, both of which report quarterly financial performance on Wednesday.
Excluding the impact of the tax bill, Citi earned $1.28 a share, surpassing the $1.16 average of estimates from analysts surveyed by FactSet. On the same basis, profit rose 4 percent to $3.7 billion.
The bank's shares have climbed 3.6 percent this year to $77.11 this year, lagging the broader S&P 500.
Revenue in the company's consumer unit, its largest, grew 6 percent to $8.41 billion as customers borrowed more money, some of it through the branded credit card business that won the lucrative Costco portfolio away from American Express.
Like rival JPMorgan Chase, Citi posted a decline in fixed-income trading, which helped drag revenue in the institutional clients group down by 1 percent to $8.1 billion. Trading in bonds and derivatives like interest-rate swaps dropped 18 percent to $2.41 billion from a year earlier, when volatility related to Britain's exit from the European Union and Trump's surprise victory in the U.S. presidential election energized capital markets.