President-Elect Donald Trump's promised tax cuts for corporations pose a threat to one of the biggest U.S. banks: Citigroup (C) , which has pitched investors for years on the enormous value of its $45 billion of tax credits accumulated during the financial crisis of 2008.
John Gerspach, Citigroup's CFO, told an investor conference on Wednesday that the New York-based lender may have to write off as much as $12 billion if Trump succeeds in cutting the corporate tax rate to 25% from about 35% currently. Under another scenario where the tax cuts are applied on more limited basis, the write-off would be closer to $6 billion, or $4 billion if the rate drops to just 28%.
"There's a lot of moving pieces," Gerspach said, "but that's sort of where we are right now in trying to do a top-level assessment."
Citigroup's Gerspach, along with CEO Mike Corbat, have touted the benefits of the so-called deferred tax assets as a way of increasing net earnings above what the bank makes from its regular operations. The downside is that the DTAs can only be deployed slowly: The lender has used just $10 billion of them since Corbat took over in 2012, and it would take 25 years to work off the remaining balance at the past year's rate.
The disclosure brings the outspoken CLSA analyst Mike Mayo closer to vindication in his contention as early as 2009 that the bank's refusal to write off the DTAs -- even then -- represented aggressive accounting practices that should have been abandoned in the wake of the post-financial-crisis clean-up. Citigroup executives, even dating back to former CEO Vikram Pandit, have adamantly insisted there was no need to write down the DTAs, arguing in a presentation as recently as September that a central pillar of the bank's strategy to improve profitability involved "consistently utilizing the deferred tax assets."