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Citigroup CFO expects $20B tax reform hit; less appetite for co-branded cards

Citigroup Inc. CFO John Gerspach said the bank expects a large one-time expense if Congress successfully passes tax reform with a 20% corporate tax rate. Separately, he said the bank has become less interested in co-branded credit cards due to stronger-than-expected demand for previously released products.

Speaking Dec. 6 at the Goldman Sachs Financial Services Conference, Gerspach said the bank would take an accounting hit of roughly $20 billion largely driven by a write-down of the bank's deferred tax assets.

"From what we understand in that [Senate] tax bill, we would then say that our best estimate would be in the year that bill gets signed, we would probably have an upfront hit of $20 billion," Gerspach said. Breaking it down, Gerspach said reduced valuation for deferred tax assets would be $16 billion to $17 billion while paying a repatriation tax to bring profits held overseas into the U.S. would cost $3 billion to $4 billion.

On the bank's core operations, Gerspach said the bank has less of an appetite to do another large partnership in U.S. branded cards. He said the bank's partnership with Costco Wholesale Corp. has performed better than expected, causing a push for more proprietary cards. He said the bank aims to maintain a mix of co-branded and proprietary credit cards. Since the Costco relationship generated more cards than expected, Gerspach said the company is focusing on proprietary cards to maintain the mix. Since co-branded cards involve revenue sharing, the products mature quicker but deliver weaker economics in contrast to proprietary cards that mature slower but offer stronger returns.