Deferred tax assets, as disclosed in securities filings, consist of benefits that companies expect to use to cut their future tax bills. For most companies, the bulk of their value is tied to the current U.S. corporate tax rate of 35%. (Assets stemming from, say, state tax bills are tied to state tax rates.)

The assets include unused credits for foreign taxes companies have paid; deductions they're allowed to take in future years for prior losses; and future tax advantages that stem from so-called “timing differences” — gaps between when income or expenses are reported to shareholders and to the Internal Revenue Service. Analysts say that calculating the value of assets associated with timing differences can be as much an art as a science.

Investors haven't begun to consider the effects of a corporate tax overhaul, said Frederick Cannon, the global director of research and chief equity strategist at Keefe Bruyette & Woods Inc. “It's still very speculative to start pricing tax reform into share prices,” he said.

Citigroup had $45.4 billion in deferred tax assets as of Sept. 30, almost all of them tied to the 35% rate.

If the rate is cut — as Trump and congressional Republicans have pledged to do — securities regulations could require the bank to immediately slash the assets' value to reflect their reduced benefit at a new, lower tax rate.

Trump and House Republicans, led by Speaker Paul Ryan, have proposed dramatic corporate tax-rate cuts — part of what they pledge will be the biggest tax overhaul since President Ronald Reagan's era. Trump has called for cutting the rate to 15%, while the House Republican “blueprint” for tax changes proposes 20%.

It's unclear which rate might prevail — or whether a deal might be reached for a wholly different rate. Amid that uncertainty, some analysts and executives have calculated the potential effects of a 25% rate — roughly the average corporate tax rate of the 34 members of the Organization for Economic Cooperation and Development.

At a 25% rate, Citigroup would be required to lower its earnings by $6 billion to reflect the reduced value of its tax-deferred assets, John Gerspach, the bank's CFO, told investors at a conference hosted by Bank of America on Nov. 16.

But that could change if a Republican call for exempting overseas corporate earnings from U.S. taxation is enacted as part of the tax overhaul. Under that scenario, Gerspach said, Citigroup would have to write down as much as $12 billion — because a large part of its deferred tax assets consist of unused foreign tax credits.

Calculations by Brian Kleinhanzl, a financial sector analyst at KBW, show that at a 25% corporate tax rate, Bank of America would face a $6.6 billion write-down, while Wells Fargo's would be $4 billion. Goldman Sachs Group Inc.'s would be $1.6 billion, according to KBW's estimates.

Offsetting Rate

“Over time, any impact will be offset by lower rates,” said Jerry Dubrowski, a spokesman for Bank of America. Ancel Martinez, a spokesman for Wells Fargo, declined to comment. “It is impossible for us to comment until we have seen legislative detail,” said Jake Siewert, a Goldman Sachs spokesman.

To be sure, any federal tax overhaul might include rules allowing companies more time to generate taxable income and fully harvest their deferred tax assets. Also, the one-time hit to earnings would be followed by higher income over the longer term, which would allow many banks to build capital faster.

“Long term, it's positive, because companies will report increased earnings per share,” said KBW's Cannon. “Short-term, tax reform won't have as large a positive effect on banks — Citi is the 800-pound gorilla.”

The implications might also reach mortgage giants Fannie Mae and Freddie Mac, which could see write downs of $10 billion and $5.4 billion respectively, according to a Nov. 27 KBW research note. Those hits would be large enough to potentially require both of them to seek a new infusion of money from the Treasury Department, the note said. Peter Garuccio, a spokesman for the Federal Housing Finance Agency, which oversees the government-backed lenders, declined to comment.

The short-term bad news has a financial flipside: Companies with so-called deferred tax liabilities — future tax bills that they now expect to pay at the 35% rate — would get a sudden windfall if the corporate rate is cut. Winners would include AT&T Inc., which could see an immediate, one-time earnings boost of as much as $30 billion, and Apple Inc., which could see an extra $15 billion, Willens said. AT&T's tax liabilities stem from depreciation and amortization tied to investments in equipment, he said, while Apple's relate to anticipated U.S. tax bills on overseas earnings.

“Clearly, a rate cut is a double-edged sword,” said Layne Albert, an accountant and tax services partner at accounting firm Grant Thornton.

Fletcher Cook, an AT&T spokesman, declined to comment, as did Josh Rosenstock, an Apple spokesman.

Meanwhile, Trump and Congress have both predicted swift action on a tax overhaul, leaving companies that face write-downs to consider the implications.

“Although I don't think they'd say so publicly, there are some companies that would just as soon forgo the rate cut, so as to preserve the sanctity of their balance sheet,” Willens said.

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