January 10, 2017 – 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 Washington.
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 US$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 Goldberg.
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 individuals.
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 trading business.