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By David Henry
NEW YORK Jan 10 Citigroup Inc stands to
get less of a profit boost than other big U.S. banks from lower
corporate tax rates expected from the new government in
A number of bank stock analysts have worked through broad
tax proposals by Republicans and President-elect Donald Trump
and estimate that a new tax law could increase Citigroup
earnings per share only half as much as some rivals.
At the same time, Citigroup may have to slash $4 billion or
more of the value of an unusually large income tax asset that
the bank holds as a result of losses it suffered during the
financial crisis of 2007-2009.
"If the U.S. cuts corporate tax rates, they will still
benefit, just benefit less," said Barclays analyst Jason
The differences between Citigroup and its competitors
highlight how corporations have different interests in the
details of a new tax law, such as how foreign income is treated
and how bank business customers might be favored less than
The blueprint for tax reform put forward by Republicans in
the U.S. House of Representatives calls for reducing the
corporate rate to 20 percent from 35 percent. Trump, who takes
office on Jan. 20, has proposed 15 percent.
Banks are expected to benefit more from corporate tax cuts
than other industries as they tend to pay more taxes as a result
of receiving fewer investment credits and deductions, such as
those available for oil and gas exploration.
Tax cuts could be the icing on the cake for banks as they
look forward to higher profits in the coming year. They are
already benefiting from higher U.S. interest rates, and lighter
regulation under the Trump administration could allow Wall
Street banks to re-enter risky but potentially profitable
The impact of a new tax law is among the topics likely to
come up this Friday when JPMorgan Chase & Co, Bank of
America Corp and Wells Fargo & Co, the three
biggest U.S. banks by assets, report quarterly results.
Citigroup reports the following Wednesday, Jan. 18.
The New York-based bank earns about half of its profits
overseas, where corporate tax rates are mostly lower than the
United States, so it stands to benefit less from lower U.S. tax
rates than its rivals with more domestic business, analysts
said. A Citigroup spokesman declined to comment on the matter.
Goldberg estimates Citigroup will get an 11 percent lift to
earnings per share this year due to tax cuts, much less than the
21.4 percent gain he is projecting for JPMorgan.
Citigroup executives disclosed a few days after the Nov. 8
election that the bank could have to write down the value of
deferred tax assets by $4 billion to $12 billion depending on
how the tax law changed and when.
The tax assets would be less useful offsetting future taxes
if corporate rates were lower.
"There's nothing they can do other than explain it," said
Fred Cannon, global director of research at Keefe, Bruyette &
Cannon estimates Citigroup annual earnings per share could
be 9.6 percent better with tax changes, about half as much as
the 18.9 percent improvement he sees for JPMorgan.
MORE MONEY FOR DIVIDENDS
More profits left after taxes should make more capital
available for additional dividends and share repurchases that
could help lift bank stock prices.
Analyst Betsy Graseck of Morgan Stanley said in a research
note on Friday that the most pressing question she is getting
from clients is how lower taxes will impact banks.
Graseck has estimated that lower taxes would boost Citigroup
earnings per share by 7 percent, Wells Fargo by 19 percent and
JPMorgan by 22 percent.
John McDonald of Bernstein Research estimates a 10 percent
lift for Citigroup, compared with a 13 percent boost for
JPMorgan and 19 percent for Wells Fargo.
The differences in the analysts' estimates underscore how
much uncertainty there is about tax reform. The estimates vary
with different assumptions about the tax rate that ultimately
comes out of Washington, as well as a possible shift in how
foreign income is taxed and when the changes would take effect.
A tax overhaul in 1986 took more than two years, Cannon
Cannon based his estimates on a 25 percent cut in the
corporate tax rate, arguing that concerns about funding the
federal budget and tax cuts for individuals will temper the
corporate rate reduction proposed by Republicans and Trump.
The more the rate is cut, the less Citigroup would benefit
compared with competitors, generally.
But the degree of its relative benefits could change, too,
if congress also shifts how foreign income is taxed, which
Republicans have proposed. How the final U.S. rate compares with
rates in particular countries where Citigroup does more or less
business than other banks would then come into play, said
"The devil is in the details," said Goldberg. "There is a
lot of uncertainty how this plays out."
(Editing by Carmel Crimmins and Bill Rigby)