Citigroup has swung to its first annual loss since 2009 after Republican tax reforms forced the US bank to take a $22 billion (€18bn) accounting hit, one of the biggest such charges in corporate history.

The larger-than-expected writedown disclosed on Tuesday pushed the group to a $18.3 billion (€14.9bn) loss for the final three months of 2017, a bigger loss even than those it posted during the financial crisis.

Executives have urged investors to look past the non-cash charge, which they regard largely as accounting red ink. Shares in Citi rallied 1.7 per cent in pre-market trading after the bank said it was sticking to a pledge to pay out at least $60 billion (€49bn) in capital to shareholders over three years, although as a result of the writedown the bank’s loss-absorbing cushion of tier one capital will decline by about $6 billion (€4.9bn).

Other banks including JPMorgan Chase are also taking such hits, although Citi’s is particularly big. About $19 billion of it arises because US tax rules allow companies to use past losses to reduce future bills. The lowered corporate tax rate, which took effect at the start of the year, cuts the value of this benefit.

However, Citi has faced questions about whether it is able to make full use of the deduction in any case – muting investor concern about the impact of the tax cut.

A levy on previously untaxed foreign profits required the bank to take an additional upfront charge of $3 billion. Under the new tax law, corporate earnings accumulated overseas are being taxed as if they are being brought back into the US.

Despite the one-time charges, Michael Corbat, chief executive, said the tax cuts should be positive in the longer term. “Tax reform not only leads to higher net income and increased returns, but also serves to strengthen our capital generation capabilities.”

Tax rate

The bank estimated that its effective tax rate will drop from the “low-30 per cent range” to 25 per cent this year.

The huge tax charges overshadowed what was an otherwise largely unremarkable batch of quarterly results. Revenues ticked up 1 per cent from a year ago to $17.3 billion as expansion in global consumer banking – especially in Asia and Latin America – offset a decline at the investment bank.

Citi was the latest Wall Street bank to report a drop in fixed income sales and trading revenues, which dropped 18 per cent year-on-year to $2.4 billion.

The institutional business was further dented by what the bank described as an “episodic loss” in equity derivatives totalling about $130 million. This was related to a “single client event”, Citi said. – Copyright The Financial Times Limited 2018