Morgan Stanley, Deutsche Bank Detail Tax-Law Charges

By Michael Rapoport 

Two more big banks said Friday they expect to take significant charges against their fourth-quarter earnings because of the impact of the new U.S. tax-overhaul law.

Morgan Stanley said it expects to take a fourth-quarter charge of $1.25 billion. Deutsche Bank AG said it anticipates a charge of about EUR1.5 billion ($1.81 billion).

Morgan Stanley said provisions of the new tax law will cost it $1.4 billion, primarily from a reduction in the value of its deferred-tax assets. The bank said this charge will be offset in part by a $160 million benefit from remeasuring reserves and interest related to Internal Revenue Service examinations of its tax returns.

Deutsche Bank said its charge also relates to deferred-tax assets and is expected to lead the German bank to record a small full-year loss for 2017.

Deferred-tax assets are past credits and deductions that companies can hold on to and use to defray future tax bills. Some banks have large quantities of them, generated by the losses they suffered during the financial crisis. But the new law's reduction in the U.S. corporate tax rate, to 21% from 35%, means many of those credits and deductions will become less valuable and must be written down.

The announcements by Morgan Stanley and Deutsche Bank follow a series of similar recent disclosures from other banks, including Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc., that expect fourth-quarter charges because of the new tax law. In addition to reductions in the value of deferred-tax assets, some banks also must pay a one-time tax imposed by the new law on U.S. companies' overseas earnings.

The reduction in the corporate tax rate means the new law is expected to benefit many banks in the long term, though neither Morgan Stanley nor Deutsche Bank made any mention of that issue Friday.

Morgan Stanley will report its fourth-quarter earnings on Jan. 18. Deutsche Bank is due to report on Feb. 2.

--Allison Prang and Nathan Allen contributed to this article.

(END) Dow Jones Newswires

January 05, 2018 15:26 ET (20:26 GMT)

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