Citigroup Hit With Huge Loss on Tax Reform

Citigroup Inc. (NYSE: C) reported its fourth-quarter financial results before the markets opened on Tuesday. The company said that it had $1.28 in earnings per share (EPS) and $17.3 billion in revenue, which compared with consensus estimates from Thomson Reuters of $1.19 in EPS on revenue of $17.22 billion. In the same period of last year, the bank said it had EPS of $1.14 and $17.01 billion in revenue.

The reported net loss of $18.3 billion included an estimated one-time, noncash charge of $22 billion, related to the enactment of the Tax Cuts and Jobs Act. This charge is comprised of $19 billion related to the remeasurement of Citi’s deferred tax assets arising from a lower U.S. corporate tax rate and shift to a territorial tax regime, and $3 billion related to the deemed repatriation of unremitted earnings of foreign subsidiaries. Excluding the impact of the new tax law, net income totaled $3.7 billion, an increase of 4% from the prior year period.

At the end of the period, loans totaled $667 billion, up 7% from the prior year period. Separately, deposits were $960 billion as of quarter end, up 3%. In constant dollars, Citigroup deposits were up 1%.

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In terms of its business segments, Citigroup reported as follows:

• Global Consumer Banking revenues of $8.4 billion, up 6% year over year.
• Institutional Clients Group revenues of $8.10 billion, down 1%.
• Corporate/Other revenues of $746 million, down 13%.

Book value per share was $70.85, and tangible book value per share was $60.40, making Citigroup still the relatively cheapest major bank compared to book value.

Citigroup’s Common Equity Tier 1 (CET1) Capital ratio was 12.3%, down from 13.0% sequentially, driven primarily by the return of capital to common shareholders and the impact of tax reform.

Michael Corbat, CEO, commented:

While our fourth quarter results reflected the impact of a significant non-cash charge due to tax reform, the impact on our regulatory capital was much less significant. Tax reform does not change our capital return goals as we remain committed to returning at least $60 billion of capital in the current and next two CCAR cycles, subject to regulatory approval. Tax reform not only leads to higher net income and increased returns, but also serves to strengthen our capital generation capabilities going forward.

Shares of Citigroup closed Friday at $76.84, with a consensus analyst price target of $81.59 and a 52-week range of $55.23 to $77.92. Following the announcement, the stock was up about 3% at $79.07 in early trading indications Tuesday.

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