Credit Suisse To Take A Big One-Time Hit From Tax Overhaul

President Trump’s recently implemented tax bill has put Credit Suisse (SIX:CSGN) Group AG (NYSE:CS) at risk of reporting the third consecutive annual net loss in 2017 as it expects $2.3 billion as a one-time charge. Notably, the figure exceeds its previous estimate of CHF2.1 billion given earlier this month.

Banks usually pay up taxes in advance so that they can claim tax relief in difficult years and treat them as deferred tax asset. Since the tax rate has been reduced to 21%, the asset has lost value and so has to be written off.

Despite this major cut, the bank is optimistic of the improving U.S. economy. It anticipates higher profits in the investment banking segment based in United States.

Nevertheless, the company reassured it investors that the promises made during Investor Day in November, to distribute about half of the net income earned to shareholders in the years to come, would be fulfilled. It expects the one-time charge to have negligible effect on its capital position. Credit Suisse will be revealing more information about the effect this reform will have on its business during fourth-quarter 2017 results.

Among others, Bank of America (NYSE:BAC) is expecting to take a $3 billion hit while UBS Group (NYSE:UBS) had estimated a figure of nearly CHF 3 billion, with no impact on its capital strength.

Our Take

The bank had reported net profit for the first nine months of 2017, which is likely to be eradicated by the negative impact of the tax bill.

Having sorted most of the legal issues, Credit Suisse might now be on the comeback trail with renewed focus on tapping profitable investment opportunities. Controlled expenses and stronger capital position are likely to support the company in undertaking growth measures.

Shares of Credit Suisse have gained 25.5% year to date, outperforming the 22% growth for the industry it belongs to.



Currently, the stock carries a Zacks Rank #3 (Hold).

A couple of better-ranked foreign banks are Bank of N.T. Butterfield & Son Limited (NYSE:NTB) , Credicorp Ltd (NYSE:BAP) . Both these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank of N.T. Butterfield & Son’s Zacks Consensus Estimate for current-year earnings has been revised nearly 1% upward in the last 60 days. The company’s share price has risen almost 20% year to date.

Credicorp’s current-year earnings estimates have been revised nearly 1% upward over the last 60 days. Also, its shares have gained 31.1% so far this year.

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