ZURICH: Switzerland's biggest banks expect a planned U.S. corporate tax cut will cost them billions of dollars due to writedowns on deferred tax assets (DTA), setting up Credit Suisse for its third straight annual loss.
Credit Suisse estimates that the proposed sharp reduction in the U.S. corporate tax rate, now moving through Congress, will cost it 2.1 billion Swiss francs ($2.1 bln), while rival UBS expects 3 billion francs in DTA writedowns due to the tax cut, according to the banks' own estimates.
U.S. lawmakers are discussing reducing the country's corporate tax rate to 20 percent from 35 percent now and Republicans hope to approve a final bill and deliver it to President Donald Trump before Christmas. If they succeed, it will be the first major U.S. tax overhaul in 31 years.
If Trump signs the bill into law this year, Switzerland's big banks would have to book the losses this year as well. The figures suggest Credit Suisse would make a loss for the full year as it reported 1.1 billion francs in net income in the first nine months of 2017.
UBS reported 3.3 billion francs in nine-month earnings.
"If President Trump were to sign it this year, it would come through this year," Credit Suisse Chief Financial Officer David Mathers told an investor presentation last week regarding the 2.1-billion-franc writedown the bank expects from the bill.
Neither Credit Suisse nor UBS expect writedowns to affect their capital positions, making it unlikely to affect their dividend payouts, but the impact on their bottom line knocked their shares on Wednesday.
Credit Suisse shares fell 1.4 percent by 1145 GMT after Swiss media, including Finanz und Wirtschaft, analyzed the banks' estimates, while UBS shares were down 0.8 percent, helping drag Europe's and the Stoxx bank sector index down 1 percent.
UBS said in its third-quarter results presentation in October that it expected a roughly 200 million franc writedown for each percentage point reduction in the U.S. tax rate. So the 15 percentage point reduction under discussion would bring its total writedown to around 3 billion francs.
A deferred tax asset built up during loss-making periods reduces the amount of tax subsequently due in future periods of profit.
Under globally agreed Basel III capital rules, banks will not be able to include DTAs that rely on future profitability to demonstrate their ability to absorb losses.
"Because we have DTA in excess of what can be recognized under the Basel III rules, that write-off will not reduce materially our CET1 (capital) position. So it won't have a capital effect," Mathers said at the investor day in London.
($1 = 0.9876 Swiss francs)