Mayo takes Citigroup

This is to respond to your request for information on the controversy between Mike Mayo, one of the most famous bank analyst and Citigroup about the treatment of Large deferred tax asset of Citigroup which was a hot issue to be discussed during the collapse of the US housing market in 2007. Citigroup acquisition of its large deferred tax asset occurred partly during the collapse of the US housing market which led into the financial service sector going into a significant and a lengthy downturn. Many financial services providers were hit pretty badly with Citigroup recording a net income fell to $2.6 billion in 2007.The credit market virtually collapsed and the US stock market was in decline. The recorded losses in 2007 and 2008 helped them grew their deferred tax assets from $4.7 billion to $38 billion by the third quarter of 2009. These valuable assets represent the economic benefit of Citigroup been able to shield an equivalent amount of future profits from taxes. Mike Mayo believes that Citigroup should recognize a valuation allowance against its deferred tax assets (DTAs) for several reasons. First, he does not believe there is “reasonable likelihood” that the company will generate sufficient profits in the coming years to utilize the full amount of the DTAs due to the fact that Citigroup had three years of losses. Secondly, other similar companies (i.e. banks) had created valuation allowances against at least part of their DTAs, so Citigroup should follow suit in the name of accounting conservatism. Mayo states that Citigroup may needed to take up to a $10 billion charge against its DTAs. This would significantly impact the company’s financial statements, as the charge would show up on the income statement as additional income. Ultimately, the higher (or less negative…) net income would increase the amount of future taxes Citigroup would have to pay, which decreases both cash flow and cash held on the balance sheet. Assets and stockholders’ equity on