What to make of deferred tax assets

People have been speculating about whether Citigroup will be forced to write down its deferred tax assets soon. But the issue is really an industry-wide one that has now drawn the attention of regulators.

Publicly traded banks have more than $130 billion of deferred tax assets on their books, according to SNL Financial. Reuters notes that that might seem small compared with the $1.7 billion of commercial real estate on companies books. But any write down could be significant in the short term. And with income prospects weak, it may be that regulators will ask for valuation adjustments.

This could affect a bank's tangible common equity. The effect will be most palpable at smaller banks. Most top banks will not be affected, as they have more ways to utilize these deferred tax assets. Citi, however, may be the large bank exception. As we've noted, it has $38 billion built up in such assets. It's comfortable with that, despite some analysts predictions that it will have to reduce that by $10 billion or so.

For more:
- here's the Reuters article

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