Thursday, April 12, 2018

Doubts over U.S. bank capital payouts may cloud strong earnings


Good story at Reuters below... there is some meat here for a change...  Tomorrow is a big day as iirc 3 big banks report 1Q.... C, JPM, WFC...  BAC probably next week.

The January 1 changes in tax POLICY do not appear well thought out (4%  $40b hit to banking system capital) and have somewhat curtailed economic activity from Q4 levels and stopped the equity rally cold.

Nor was it well coordinated with pending bank reform legislation... SB 2155 now seemingly a bit stalled in the House (idiot Ryan...) should be held in view here also...

Quirks in the new U.S. tax code are sowing doubts over how much big banks can boost dividends and stock buybacks this year, threatening to take the shine off what are likely to be strong quarterly profits. 
Eight years of U.S. economic growth have been a tailwind for banks, but the Fed has since 2013 made its stress test scenarios more challenging each year. The tests are meant to ensure banks have enough capital in sharp downturns to meet regulatory requirements. 
Meanwhile, the new tax law could deliver a one-two punch to capital measured in the stress tests. 
After first writing down deferred tax assets to account for a lower corporate rate, banks now face being prevented from carrying back losses in stress testing to past profitable quarters to benefit from tax rebates. 
Analysts are likely to push executives for details on the complex tax issues and already opaque stress tests. 
Lenders submitted their balance sheets for testing last week.






2 comments:

Footsoldier said...

Poor banks.

Poor bank shareholders.

Where's my handkerchief?

Lower corporation tax means that they pay less tax in a good year but also that the value of the tax credit they receive (should they make an operating loss) is also reduced, and they can no longer carry the losses back and redeem them against an earlier profit. A small price to pay, I think.

In short, a lower tax on profits means that bank net earnings will be more volatile (79% of something is more volatile than 65% of something), and the prevention of carry backs will make them a little bit more volatile. Isn't the world unfair?

They should Quit whining! They mad enough through the bank bail outs when they should have went to the wall.

They've had a massive tax cut. That makes their earnings more volatile, mostly in a nice way. So they should now hold some more capital.


(Next up - Wall Street complains that lower tax rates make the purchase of a new corporate jet less attractive since it can only expense 21%, rather than 35%, of the expense.)


Sometimes I wonder why you support the banking cartels so much Matt.

Matt Franko said...

Yeah idiot me I want the system to be optimized....