Citigroup Steers Into Recovery, With Others’ Hands on the Wheel

The snag with Citigroup’s decade-long climb back from the financial brink is that it’s been largely driven by forces that its chief executive, Mike Corbat, doesn’t control. Changes to the United States tax regime show that’s sometimes a good thing.

Tax cuts just left Citigroup with a big loss, and a bigger opportunity. The $203 billion lender took a $22 billion charge in the last quarter of 2017 as it wrote down deferred tax assets — credits against future tax bills — and took a hit for deemed repatriation of overseas earnings. That left it deep in the red. But its new corporate tax rate of an effective 25 percent will hike earnings in the future. If the tax law had been in effect last year, the 9.6 percent return on tangible common equity Citigroup just reported for the year would have risen above 10 percent — already beating his target for 2018, and suggesting that Mr. Corbat can be more ambitious.

Beyond that, the impact of the tax cuts becomes less clear, but they will probably still be helpful. If consumers and small businesses feel richer, as its rival JPMorgan Chase said last week they probably will, a beneficiary should be a company like Citigroup, which makes roughly one-quarter of its revenue from credit cards. Mr. Corbat warned last year that the cost of writing down unrecoverable loans was going to rise a little more than expected, and credit losses on its North American own-brand card business rose 10 percent in the quarter. More cash flow for households may keep that in check — and might actually encourage more borrowing.

Where Mr. Corbat can steer Citigroup directly, he is doing so. Expenses fell to 58 percent of revenue, compared with 59 percent a year ago. Investment banking was more mixed: Revenue from fixed-income trading, where Citigroup is heavily exposed to flaccid rate and currency movements, plunged by almost one-fifth. Yet the bank is collecting more advisory fees. Its share of the overall pot rose a little to 4.8 percent in 2017, according to data from Thomson Reuters.

Citigroup is still a passenger in some important ways — rate setters will decide what happens to the yield on its $1.8 trillion in assets, while regulators must still sign off on future cash returns to shareholders. And of course, some of what it saves in tax will go to staff and customers, but that’s the case for other banks too. Citigroup was for a long time the only big United States lender with a market value below the book value of its equity. Whether through its own doing or not, it can now leave that sorry label behind.