Print Edition - 2018-01-14 | MONEY
Bank execs sing praises of new tax law as windfall looms
- ECONOMIC BOOST
-, NEW YORK
Jan 14, 2018-
Two of the nation’s biggest banks—JPMorgan Chase and Wells Fargo—indicated on Friday that they expect to see significant future benefits from the recently enacted GOP tax bill, through both lower taxes and increased business.
The comments came as the two companies reported their quarterly results, which were both heavily impacted by the change in tax laws, but in different ways. JPMorgan Chase took a $2.4 billion charge tied to the tax bill, while Wells Fargo had a $3.35 billion benefit.
Bank executives and their lobbyists in Washington were big promoters of a corporate tax cut. Banks are among the highest-taxed industries, largely because they operate here in the US, and have regularly paid effective tax rates of 30 percent or more. JPMorgan CEO Jamie Dimon and other company executives for years said a lower tax rate would not only be good for JPMorgan, but ultimately good for the country as well.
“The modernisation of the US tax code is a significant step forward for the company and a big win for the economy,” said Marianne Lake, JPMorgan Chase’s chief financial officer, in a conference call with investors.
JPMorgan executives say they expect to pass along some of the benefits, currently in unnamed ways, to consumers, its employees and its shareholders. The bank already raised its minimum wage to $15 an hour before the tax bill passed, but further wage increases could be on the table. Wells Fargo announced shortly after the bill was passed it would raise its minimum wage to $15 an hour as well. Wells Fargo CEO Timothy Sloan said he estimates 70,000 employees at Wells Fargo will benefit during a conference call with investors.
The tax department of JPMorgan has been “working around the clock for many months leading up to the passage” of the tax bill, Lake said, calling the bill “extraordinarily complicated.” Lake and executives at other banks are still assessing the law’s full impact, however.
But before JPMorgan can benefit from the new tax law, it had to take a significant one-time charge.
Like many banks after the 2008 financial crisis, JPMorgan had billions of dollars of what are known as tax-deferred assets on its balance sheet. These are basically credits it could have used to pay future income taxes. These credits built up after the big Wall Street banks took billions of dollars in losses from bad mortgages and other toxic assets.
Because the new tax bill lowered the corporate tax rate to 21 percent, the value of those tax-deferred assets had to be written down. The $2.4 billion one-time charge covers the change in value of those assets. Other banks, like Bank of America, Citigroup and Goldman Sachs are expected to take similar actions as they report their results over the next couple of weeks.
JPMorgan now expects its effective corporate tax rate to be roughly 20 percent. In comparison, JPMorgan paid an effective tax rate of 28.4 percent in 2016 and a tax rate of 31.9 percent in 2017. The change will save JPMorgan billions of dollars over the coming years. The bank paid $9.8 billion in income taxes in 2016.
Wells Fargo is unique in that it had deferred tax liabilities, not assets, on its balance sheet, basically income taxes it may owe in the future. Wells Fargo some of its $7 billion of deferred tax liabilities and recorded a $3.35 billion gain. Wells Fargo now expects its effective annual tax rate to be around 19 percent.
JPMorgan said Friday it earned $4.23 billion in the fourth quarter, or $1.07 a share, down from $6.73 billion, or $1.71 a share, in the same period a year earlier. Excluding the $2.4 billion charge, the bank would have earned $6.7 billion, or $1.76 a share, which beat analysts’ forecasts of $1.69 a share.
Published: 14-01-2018 09:06