European companies are set to see significant gains from the $1.5 trillion overhaul of U.S. corporate and individual tax rates passed last week by Republican lawmakers, although the impact may hit the value of current deferrals that sit on the balance sheets of some of the region's biggest firms.
Royal Dutch Shell (RDS.A) , Europe's biggest oil company, said Wednesday that it expects the U.S. tax cuts, which take the baseline corporate rate to 21% from 35%, will be "favourable to Shell and to its US operations" but won't be able to value the changes until it publishes its full-year earnings in February.
"However, on the basis of the third quarter 2017 financial statements, Shell would have incurred an estimated charge to earnings of $2 billion to 2.5 billion primarily driven by a re-measurement of its deferred tax position to reflect the lower corporate income tax rate," Shell said in a statement. "This charge represents a non-cash adjustment and will be reflected as an identified item."
Shell shares were marked 0.86% higher at 2,473.05 each by mid-morning trading in London, extending their three-month gain past 11.1%
The writedown of tax deferrals is also likely to hit quarterly earnings in the banking sector, with both Credit Suisse Group AG (CS) - Get Credit Suisse Group AG Sponsored ADR Report and Barclays plc (BCS) - Get Barclays PLC Sponsored ADR Report indicating Wednesday that they will adjust the value of those benefits in the current quarter.
Credit Suisse will take an Sfr2.3 billion ($2.3 billion) charge, the bank said, although it stressed that "the write-down is a one-time accounting adjustment and has a minimal impact on Credit Suisse's strong regulatory capital position."
The bank said it expects the reforms "will have a positive impact on the US economy and our activity levels in the US, in particular with regard to our investment banking activities in advisory and underwriting." Credit Suisse shares slipped 0.84% in Zurich to Sfr17.67 each.
Barclays shares gained 0.4% to 202.9 each after it said it will book a £1 billion ($1.34 billion) hit to its full-year profits thanks to its deferred tax adjustment writedown, the bank said, but forecast that the "reduction in the statutory US federal rate is expected to positively impact Barclays' future US after tax earnings."
Last week, luxury carmaker BMW AG
(BMWYY) said re-valuing its deferred tax benefits won't hit its 2017 earnings, but noted that, "based on initial calculations, BMW AG expects the re-measurement to have ap ositive impact on deferred taxes in 2017 and therefore on group net profit in the
region of €950 million to €1.550 billion."
"The exact amount can only be computed during preparation of the 2017 group financial statements," the group said.
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