Citigroup reports $18 billion loss on one-time tax items

The big Wall Street banks have been reporting billions of dollars in paper losses in January 2018, as they are forced to come into compliance with the new tax law. The biggest loser so far has been Citigroup, which reported an $18 billion loss. (AP)
Updated 16 January 2018
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Citigroup reports $18 billion loss on one-time tax items

NEW YORK: Citigroup posted a quaterly loss of $18 billion on Tuesday because of charges related to a new US tax law, but its adjusted earnings beat Wall Street expectations and management signaled that the bank may soon lift financial performance targets.
The law, signed by President Donald Trump last month, has made fourth-quarter earnings a messy ordeal for big banks. It forces them to take one-time hits on earnings held abroad and changes the treatment of deferred tax assets, both of which affect Citigroup in particular.
However, banks and other large US corporations expect to benefit greatly from lower taxes and other provisions in the new law over the long term.
Citigroup, the fourth-largest US lender, stands to gain less than peers because it already earns about half of its profits in lower-tax countries abroad. Even so, it expects its tax rate to fall to about 25 percent this year from 30 percent in 2017. That could save the bank billions of dollars over the next few years.
The changes will not only boost Citigroup’s profits, but allow the bank to generate higher returns and generate more capital, Chief Executive Michael Corbat said. The new law might also stimulate economic growth because it incentivizes companies to invest in their businesses and has led to wage hikes that could help consumers, he said.
“Tax reform is a clear net positive for Citi and its shareholders,” Corbat said on a conference call with analysts.
Management is now examining financial performance targets set before the tax law changes to see whether they should be lifted, Chief Financial Officer John Gerspach said on a separate call with journalists.
Based on the tax savings alone, Citigroup expects to generate a return on tangible common equity of 10.5 percent this year, 12 percent next year and 13 percent in 2020, higher than previous forecasts. That metric is closely watched by Wall Street as a gauge of how much profit a bank can generate from shareholder money.
Executives also expect inflation to boost Citigroup’s net interest income as the US Federal Reserve continues to lift rates this year. For every 25 basis points the Fed lifts rates, Citi should generate another $80 million of revenue, Gerspach said.
Citigroup shares rose 0.4 percent to $77.12 in morning trading.
Lagging competitors in growth and not earning its cost of capital, Citigroup’s valuation has not kept up with rivals like JPMorgan Chase and Bank of America Corp. Investors and analysts have been pushing Citi to prove it can grow revenue and profits as a second act to shrinking and returning capital.
The bank already plans to return at least $60 billion worth of capital to investors through stock buybacks and dividends, a target executives reiterated on Tuesday.
Excluding the tax issues, which led to $22 billion in charges, its fourth-quarter earnings were boosted by growth in consumer banking, especially in Asia and Mexico.
Its adjusted net income rose 4 percent to $3.7 billion, or $1.28 per share, compared with analysts’ average estimate of $1.19 per share, according to Thomson Reuters.
Total revenue rose 1.4 percent to $17.26 billion and was slightly better than estimates of $17.22 billion.
Citigroup’s institutional business, which includes investment banking and trading, fell 1 percent due to weakness in trading that has also affected Wall Street peers.
Bond trading revenue fell 18 percent due to ongoing weakness in volatility, while equity markets revenue was down 23 percent because of $130 million worth of losses on a derivatives trade with one client.
The client is troubled South African furniture retailer Steinhoff International, a source familiar with the matter told Reuters. Other lenders, including JPMorgan Chase & Co, also have exposure to Steinhoff, which has been embroiled in an accounting scandal.
In reports on Tuesday morning, several analysts said Citi’s results were modestly ahead of Wall Street’s best guess and that they were more focused on whether the bank would lift performance targets.
“Results could prove ‘good enough’ this quarter,” Instinet analyst Steven Chubak wrote in a note to clients.
Citi’s results follow JPMorgan and Wells Fargo last week. Bank of America Corp. and Goldman Sachs Group Inc. plan to report fourth-quarter results on Wednesday, with Morgan Stanley expected to report on Thursday.


Indonesia’s Go-Jek close to profits in all segments

Updated 18 August 2018
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Indonesia’s Go-Jek close to profits in all segments

  • Go-Jek is Indonesia's first billio-dollar startup
  • Ride haling app evolves into online payment platform

JAKARTA: Go-Jek, Indonesia’s first billion-dollar startup, is “extremely close” to achieving profitability in all its segments, except transportation, its founder and CEO Nadiem Makarim told Reuters.

Launched in 2011 in Jakarta, Go-Jek — a play on the local word for motorbike taxis — has evolved from a ride-hailing service to a one-stop app allowing clients in Southeast Asia’s largest economy to make online payments and order everything from food, groceries to massages.

“We’re seeing enormous online to offline traction for all of our businesses and are close to being profitable, outside of transportation,” said the 34-year old CEO.
The startup is expected to be fully profitable “probably” within the next few years, Makarim added.

Already a market leader in Indonesia, where it processes more than 100 million transactions for its 20-25 million monthly users, Go-Jek is now looking to expand in Southeast Asia.

Ride hailing services in Southeast Asia are expected to surge to $20.1 billion in gross merchandise value by 2025 from $5.1 billion in 2017, according to a Google-Temasek report.

Go-Jek said in May it would invest $500 million to enter Vietnam, Singapore, Thailand and the Philippines, after Uber struck a deal to sell its Southeast Asian operations to Grab — the bigger player in the region.

Go-Jek is seeing strong funding interest from its backers as it targets an aggressive expansion, Makarim said.

“Since its Aug. 1 launch, the app has already grabbed 15 percent of market share in Ho Chi Minh,” Makarim said. The firm this week opened recruitment for motorcycle drivers in Thailand.

The startup expects anti-monopoly concerns swirling around the Grab-Uber deal, which Singapore said had substantially hurt competition, to help clear a path for its expansion.

“We’re bringing back choice. The Singapore government is particularly eager to bring back competition,” Makarim said, adding that the order of overseas rollouts had not been set.

Go-Jek’s offshore push comes at a time when Singapore-based Grab is stepping up funding to expand in Indonesia and transform itself into a consumer technology company, starting with a partnership with online grocer HappyFresh.

“Mimicking Go-Jek’s strategy is the highest form of flattery,” laughed Makarim.

Grab told Reuters in a statement, “The super app strategy has been around for a while now and no Southeast Asian player can claim to have pioneered it.” The company also said Grab has not lost market share in Ho Chi Minh since August, but declined to provide market share data.

Makarim believes Go-Jek’s understanding of food merchants will give it an edge over Grab, which counts investors such as Chinese ride-hailing firm Didi Chuxing and Japan’s SoftBank Group Corp. among its backers.

Makarim, who sees food delivery as Go-Jek’s core business, said he was not concerned about funding, without giving details.

Go-Jek was reported in June as being in talks to raise $1.5 billion in a new funding round and was valued at about $5 billion in a prior fundraising, sources have told Reuters. The firm had said in March it was considering a domestic IPO.

Makarim noted Go-Jek’s backers were sharing both capital and expertise. The company is collaborating with Alphabet Inc’s Google on platform mobility, Tencent on payments strategy, JD.com on logistics operations, and Meituan Dianping on merchant transactions and deliveries.

Go-Jek has set up a venture capital arm, Go-Ventures, to invest in startups in Southeast Asia “with strategic importance to our business,” the CEO said.