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Morgan Stanley to take $1.25B hit for U.S. tax revamp

Morgan Stanley said it will take a roughly $1.25 billion hit to earnings in the fourth quarter, becoming the latest bank to detail how profit will be hurt in the near term by the U.S. tax overhaul driven by President Donald Trump.

The drag on net income consists of a charge of about $1.4 billion, primarily from writing down its U.S. deferred tax assets, the company said in a filing Friday. That’s being offset by a gain of about $160 million related to a multiyear tax examination. The estimated tax provision is based on assumptions made by the firm and may change as it receives additional clarification, it said.

Trump last month signed into law Congressional Republicans’ tax overhaul, his first major legislative victory. The move slashes the corporate-tax rate to 21% from 35%, a cut that could benefit some banks. The plan also offers some temporary breaks for other types of businesses and individuals.

Morgan Stanley by Bloomberg

While banks will benefit from the lower rate, the new law requires charges in the near-term as foreign earnings face taxation and the value of deferred tax assets declines. Goldman Sachs revealed last week that its earnings would be crimped by about $5 billion, mostly from the repatriation tax, while Bank of America announced a $3 billion charge.

Citigroup has said it expects a hit of as much as $20 billion, mostly from writing down its DTAs. That was under an earlier version of the plan. JPMorgan Chase and Capital One have warned that tax changes could hit their earnings.