Citigroup Super Psyched About Worst Quarter Ever

Mike Corbat & co. could not be more excited about this $22 billion write-down.
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In a simpler time, Citigroup would be reporting a rather underwhelming-sounding $3.7 billion fourth-quarter profit. But Donald Trump is president and a massive tax overhaul that reads as though it were written by the Chamber of Commerce has just gone into effect. Still, this being 2018 and that tax overhaul being Donald Trump’s tax overhaul, there are paradoxes that must first be reconciled before the full, beautiful, amazing glory of the whole thing can be truly appreciated. In Citigroup’s case, that involves a $22 billion charge producing an $18.3 billion quarterly loss, the largest in the bank’s history. Not that you get any sense of the magnitude of the thing hearing Citi’s CFO talk about it.

Citi.Trump

“I think there’s a great opportunity for the economy to grow,” Mr. Gerspach said.

He brushed off the tax charge as a temporary bump in the road. “It’s something we think we can quickly overcome,” he said, “and it’s not a headwind that causes us to alter any of our existing plans.”

Fittingly, this gigantic write-down and consequent mammoth loss stems from some of Citi’s previous worst quarters, specifically those during the financial crisis, which generated $58 billion in deferred tax assets that Citi has been slowly whittling down, using them to whittle down the income on which it currently has to pay taxes. But tax reform slashed those deferred-tax assets from $45.5 billion to just $23 billion on Jan. 1, so Citi just spent them all on Dec. 31.

No matter: In spite of the huge loss, and the big drop in trading revenue the charge helps hide, Citi still expects to have $60 billion to return to shareholders in the coming years, which will be anni mirabili thanks to President Trump.

“Tax reform does not change our capital return goals,” Chief Executive Officer Michael Corbat said in the statement. The reform “not only leads to higher net income and increased returns, but also serves to strengthen our capital generation capabilities going forward.”

Citigroup Earnings Wiped Out by Tax Charge [WSJ]
Citigroup Plays Up Investor Payouts Once Tax Cuts Trigger Profits [Bloomberg]

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Mike Corbat's Got Two Choices For Citigroup Employees

Choice number one: everyone starts earning more money for the bank, following an exhilarating pep rally run by Corbat in the cafeteria involving senior executives shooting Citi swag into the crowd out of tee-shirt guns, cheerleaders, and  a Spartacus Workout demo and before/after shots of MC, meant to inspire people and show them what they're capable of if they really put their minds to something. Choice number two: Bank of America-style layoffs. Michael Corbat, new chief executive officer, says he wants to run a more efficient bank. That means rousing or cutting one of Wall Street’s least productive workforces. Citigroup generated about $206,000 of revenue for each employee through the first nine months of the year, down 7.5 percent from the same period in 2011, while rivals including Wells Fargo & Co. posted increases, according to data compiled by Bloomberg. Excluding a one-time writedown of $4.7 billion, Citigroup’s productivity rose less than 1 percent...“It’s likely they will have some sort of headcount- reduction program more in line with Bank of America, which is looking to get rid of about 10 percent of employees,” said Erik Oja, an equities analyst at Standard & Poor’s in New York. “Having the lowest revenue per employee is something they will have to address, and growing the revenues is pretty tough right now with net interest margins falling and loan growth so low.” Pandit probably was distracted from his cost-cutting goal as he grappled with public rebukes while trying to sell unwanted assets, said David Knutson, a credit analyst with Legal & General Investment Management America in Chicago, which owns Citigroup debt. Disposing of Citi Holdings assets remains “the elephant in the room,” he said. “He had a lot of plates in the air, and there were a couple of setbacks,” Knutson said. “Expense cuts are painful, and you’ve got to gore some sacred cows,” Knutson said. “You can’t do that if you don’t have an explicit mandate, if you don’t have focus and you’re hamstrung with legacy issues.” Citigroup Productivity Worst of Big Banks Shows Challenge [Bloomberg] Earlier: Mike Corbat Will Torch The Fat Off Citi Like He Torched The Fat Off His Abs