Barclays (LON:BARC) has warned of a hefty hit to profits from US President Donald Trump’s tax reform. The London-listed bank, however, expects that the measures, which will see a cut to the corporate tax rate, will also be positive for its US earnings going forward.
Barclays’ share price rose in the previous session, adding 0.37 percent to close at 203.40p, marginally outperforming the broader UK market, with the benchmark FTSE 100 index ending trading 0.03 percent higher. The group’s shares have lost just under 10 percent of their value over the past year, as compared with more than a seven-percent rise in the Footsie.
US tax hit
Barclays announced in a statement this week that the Tax Cuts and Jobs Act is expected to result in an associated one-off charge of about £1 billion to its profit after tax, as well as to about a 20 basis point reduction to its core capital ratio. The estimates will be accounted for in the financial year ended December 2017.
The London-listed lender, however, also forecasts that the reduction in the statutory US federal rate will positively impact its future US tax earnings, while cautioning that the Base Erosion Anti-Abuse Tax (BEAT), included in the legislation to prevent multinational companies from abusing the tax code, could significantly reduce that benefit.
“Due to the uncertain practical and technical application of many of these provisions, it is currently not possible to reliably estimate whether BEAT will apply and if so, how it would impact Barclays,” the lender pointed out.
Analysts weigh in
“It looks likely the provisions for base erosion and anti-abuse tax will reduce much of the benefit of the US tax cut,” said Edward Firth, a London-based analyst at Keefe, Bruyette & Woods, as quoted by Bloomberg. “Near term, any positive earnings revisions are likely to be very modest.”