Updated to include new information and additional comment from the company.
NEW YORK (
) -- Outspoken bank stock analyst Richard Bove took the opposing view to an ongoing debate regarding whether
is 'cooking its books' over the treatment of deferred tax assets.
Based on a lawsuit that has not even been tried a hue and cry has been raised that Citigroup is 'cooking its books.' This may be a little extreme," Bove writes. "There is no evidence, no proof, no analysis, just a strong feeling. Maybe this is enough in these times to take down billions of dollars in the value of bank stocks. Who knows?"
FOX Business News
is reporting that the
Securities and Exchange Commission
has asked Citigroup to provide more information regarding its deferred tax assets at least twice over the past 18 months.
A spokesman reiterated to
that the bank is in "continuous contact" with regulators as part of its "normal comment and review process on our SEC filings."
"We respond to all such comments in due course, including any comments on our DTAs," the statement said. "In addition, Citi is required to report material developments in litigation and government investigations in its public filings; a review of our filings over the past year indicates there is nothing regarding our DTAs."
In practice, deferred tax assets can be used to reduce taxes on future income if they meet certain legal and accounting hurdles. One of the most significant hurdles is the ability of a company to maintain earnings over a period of time. Bove argues that in order to justify the tax break in the eyes of auditors and the
Internal Revenue Service
Citi will need to earn $99 billion over a certain number of years.
"Those who are questioning the ability of Citigroup to meet these parameters have not raised any specific examples as to why the company will not meet the time schedules," Bove writes. "Rather, it is simply being implied that the company cannot meet the required
targets. Therefore it is being implicitly suggested ... that the company will fail and therefore, it should have created a valuation allowance against the deferred tax asset."
The issue of Citi's DTAs has been simmering for several months as analysts have debated if the bank was properly applying the rules. In late 2009 tax expert Robert Willens suggested to Citigroup investors that a large writedown would be needed during investor call hosted by veteran equity analyst, Mike Mayo. But Willens
, reversed his opinion this spring.
Mayo has not changes his view and postulated that Citigroup is "possibly violating securities law by failing to take the losses on its DTAs," according to
earlier this week.
A Citigroup spokesman reiterated in an emailed stated that the bank is "very comfortable with the recording of our deferred tax assets" and Citi has provided "extensive detail on our DTA in various 10-K and 10-Q regulatory filings."
Citigroup's stock, which had strong gains along with the rest of the financial sector earlier in the year, has struggled in recent months to regain the $5 threshold it hit in April following positive first-quarter earnings. To be fair, a majority of the stocks in the financial sector has also be struggling to regain the gains made earlier in the year. Citigroup shares are up just 10.5% year to date, based on Thursday's closing price -- far below the nearly 50% gain it had following first-quarter earnings.
Citigroup shares were trading up 1.8% to $3.72 on volume of roughly 240 million shares at midday, Citigroup remains the most actively traded stock on the
New York Stock Exchange
--Written by Laurie Kulikowski in New York.
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