“Tax Plan May Cost Citigroup $20 Billion”

During a Wednesday presentation, John Gerspach, Citigroup CFO warned Citi Could Face $20 Billion One-Time Hit.

The bank would take a big hit from writing off deferred tax assets it has held on its books, roughly $16 billion to $17 billion, John Gerspach said during a question-and-answer session at a Goldman Sachs banking conference in New York. And it would take a $3 billion to $4 billion hit from paying taxes on money it had held overseas.

A deferred tax asset is actually a benefit for a company, allowing it to claim tax relief in subsequent years. But Citi planned those assets for a 35 percent tax rate. If the rate drops to the GOP’s target of 20 percent, the assets are worth less to Citi, and it has to write off the difference.

Much has been written about the benefits to corporations from the tax bill, including that lower 20 percent tax rate, but less has been understood about the consequences as companies are forced to shift how they have done their tax planning.

Citigroup Daily

There was almost no market reaction. The long-term benefit more than offsets the one-time hit.

It will be interesting to see if other companies have similar one-time issues.

Mike “Mish” Shedlock