Citigroup reports steep fourth quarter losses tied to U.S. tax reform

Ivan Schwartz
January 17, 2018

Citigroup Inc posted an $18-billion quarterly loss on Tuesday because of charges related to a new US tax law, but its adjusted earnings beat Wall Street expectations and management signaled that the bank may soon lift financial performance targets.

The bank reported adjusted earnings per share of $1.28 for the fourth quarter of 2017. About $19 billion of it arises because USA tax rules allow companies to use past losses to reduce future bills.

The law, signed by President Donald Trump last month, has made fourth-quarter earnings a messy ordeal for big banks. Investment banking revenue of $1.24B up 10%; fixed income revenue of $2.4B down 18%; equity markets revenue of $530M down 23%.

Despite the one-time charges, Michael Corbat, chief executive, said the tax cuts should be positive in the longer term.

A levy on previously untaxed foreign profits required the bank to take an additional upfront charge of $3 billion. The law will help lower the bank's tax rate from about 30 percent to 25 percent, potentially saving Citigroup billions over the next few years, industry analysts have said.

Bank of America Corp, the second-biggest USA lender, and investment banking house Goldman Sachs Group Inc are expected to report fourth-quarter results on Wednesday. The reform "not only leads to higher net income and increased returns, but also serves to strengthen our capital generation capabilities going forward".

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However, adjusted earnings per share for the quarter beat analysts' estimates, while revenues were in line with expectations.

The quarterly results swung to a loss of $18.3 billion, or $7.15 a share, from profit of $3.57 billion, or $1.14, a year earlier.

Revenues rose 1.4% from previous year to $17.25 billion, also edging out analysts' view for $17.23 billion.

Citigroup shares rose 0.4 percent to $77.12 in morning trading.

The bank's Global Consumer Banking business, which includes retail banking and credit cards, rose 5.6 percent and accounted for almost half of total revenue.

However, fixed income markets revenue decreased 18 percent due to continued lower volatility in the quarter as well as the comparison to a more robust trading environment in the prior year period as a result of the USA elections. Performance suffered from a $130 million loss in equity derivatives related to a "single-client event", the bank said, without naming the customer.

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