Note that it’s clear future tax revenues from banks are going to be severely limited by the carry forward of tax losses. Two generic things to note there first of all. In general, Citi would need to generate approximately $86 billion of taxable income during the respective carryforward periods to fully realize its U.S.
The most significant source of these timing differences is the loan loss reserve build, which accounts for approximately $15 billion of the net DTA. In this case Citi says that because it has either losses it can carry forward or the benefit of allowances it has not yet claimed their cash value for tax purposes. However, some argue Citi is being too optimistic given its recent record - its pre-tax losses in 20 topped $60bn - and continued global economic uncertainty.ĭeferred tax calculation is at best a black art. In the 2002-2006 period Citi had annual pre-tax profits of at least $20bn. Under accounting rules, Citi has to be confident it will earn $99bn in taxable income during the next two decades to avoid making provisions for DTAs. The US bank has rebuffed calls to reserve for its DTAs - the biggest held by a US company - arguing that it will earn enough money in the future to justify keeping the assets on its books. At the end of the second quarter, deferred tax assets made up more than a third of Citi’s tangible equity - a measure of balance sheet strength. The assets, a product of the accounting principles applied by US tax authorities to companies, are crucial to Citi’s financial health.
The FT notes that Citigroup is at the centre of a dispute among analysts and accounting experts over whether it should set aside funds to cover $50bn of deferred taxes, a move that would reduce its capital buffer and weaken its balance sheet.
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