Financials Citigroup Inc (NYSE:C): Tax Cuts May Not Yield Desired Results

Citigroup Inc (NYSE:C): Tax Cuts May Not Yield Desired Results

Published By News Desk at January 10, 2017 09:46 am Citigroup expected to benefit less from tax cuts compared to its peers

Given the business interests held by Citigroup Inc (NYSE:C), the bank is not expected to benefit from the cut in corporate taxes as much as its peers. The low corporate taxes promised by the new US government is projected to give a boost to large-cap banks, but that won’t be significant, given the standing of Citigroup.

According to analysts' estimates, the tax proposals put forward by the party of Donald Trump will only increase the earnings per share (EPS) of the bank by half compared to other peers of the bank. On the other hand, the bank will be required to cut $4 billion or more from its extraordinarily large income tax asset which was built up as a result of losses it incurred during the crises of 2008. Overall, the bank will benefit from the tax cuts but will benefit less.

The fact that Citigroup will be benefitting less shows that having a large asset base or producing extraordinary performance does not mean that the benefit one organization will derive from a policy change will be similar to its peers. This thing depends on the interest which corporations hold in the various aspects of tax law. The inclination towards retaining more corporate clients compared to individual clients also has an impact on whether the company is able to benefit from policy change or not.

Donald Trump proposed cutting corporate taxes from 35% to 15%, but this seemed impractical to many. Therefore, the Republican proposed to the US House of Representatives that the rate should be cut to 20% from 35%. Donald Trump is expected to take control of the office on January 20, 2017. After taking the position of President in the White House, Mr. Trump is expected to implement a series of fiscal measures aimed at boosting the economy and creating more jobs.

The banking sector will benefit the most from tax cuts amongst other industries as banks usually pay more taxes. They also normally get fewer investment credits compared to other industries.