Trump’s Tax Cuts Imply Billions Worth Of Deferred Tax Asset Writedowns For Wall Street Banks

Corporate tax reform has been a key policy initiative of Trump’s as he has called for slashing the corporate tax rate from 35% down to 15%. While this is welcome news for most companies, it would result in some fairly staggering write-downs for Wall Street’s largest banks that amassed substantial net operating losses in 2008 and 2009.

According to Bloomberg, Citibank would be hardest hit with write-downs that could hit earnings for up to $12 billion or more. 

Donald Trump’s planned U.S. corporate tax cuts could translate to a big one-time earnings hit for many of the biggest U.S. banks, thanks to tax benefits they generated during the 2008 financial crisis.

Citigroup Inc. would take the deepest earnings hit — perhaps $12 billion or more, according to recent estimates by the bank’s chief financial officer and several banking analysts. Mark Costiglio, a Citigroup spokesman, declined to comment. Others, including Bank of America Corp. and Wells Fargo & Co. could face multibillion-dollar write-downs.

The banks might have to write down deferred tax assets, which often pile up when a company loses money and can’t immediately enjoy the tax benefits of those losses. Any write-downs won’t have much impact on capital levels for the banks for regulatory purposes, and lower taxes will allow for higher earnings in the long run.But a one-time hit to earnings can make for a bruising quarter — and even year — for a bank’s results.

“It’s a traumatic experience for companies with large” amounts of such assets, said Robert Willens, an independent tax and accounting expert in New York. “In one fell swoop, a significant part of their net worth goes up in smoke.”

Among other things, Trump’s major tax policy proposals for businesses include slashing the corporate tax rate to 15% from 35%, providing a one-time repatriation holiday of 10% for cash held overseas and allowing businesses with manufacturing operations in the United States to expense capital expenditures.While it’s unlikely that he’ll get all of those proposals through Congress, even a rate reduction to 25% would result a meaningful earnings hit for the banks.