Daily Management Review

Tax Cuts And Higher Rates Push US Bank Profits Into Double Digits


10/13/2018




Tax Cuts And Higher Rates Push US Bank Profits Into Double Digits
Expanding economy and lower taxes drove the third quarter profits up by double digits for the three of the largest U.S. banks as all of them forecast continued growth under the condition of the continuance of the current business trends.
 
The third quarter saw a strong demand for loans which was a benefit for the banks because of the rising interest rates as they could charge more for loans while expending less for funding the costs. Additionally, there was boom in the stock market activity aided by a business-friendly environment by the Trump administration.
 
This resulted in the widening of the net interest margins of the banks which is the difference between the income from interests charged from customers and the payments needed to be paid for the deposits that they hold. Additionally, the profits were padded by some other activities like providing treasury services for corporations and managing customers’ wealth.
 
The profits were also helped by cist curtailment efforts that the banks had been following since the global financial crisis of 2007-08 and a tax cut by the Trump administration last year. That resulted in quarterly savings to the tune of billions of dollars.
 
“Wages are going up. Participation is going up. Credit that’s been written is pristine. Housing is in short supply. Confidence - both small business, consumers - is extraordinarily high, and that could drive a lot of growth for a while despite some of the headwinds out there,” JPMorgan Chase & Co Chief Executive Officer Jamie Dimon told analysts on a conference call.
 
According to results released on Friday, some of the banks benefited more from the rising economic even as all of them gained form it.
 
A 25 per cent jump in profits for the third quarter was reported by the biggest US bank – JPMorgan, as every business unit contributed to the rise.
 
On the other hand, a 12 per cent rise in profits was reported by the number 3 banker in the US - Citigroup Inc, primarily helped by tax cuts and cost cutting measures.
 
A 32 per cent jump in quarterly profits was reported by the fourth-largest US lender - Wells Fargo & Co, with it reporting strong demand for loans from the auto, small business and personal loans units in addition to benefits from cost savings.
 
“It is a good time for the banks,” said Allen Tischler, a bank analyst at Moody’s Investors Service.
 
However, all of the analysts and investors were not overtly impressed by the third quarter results despite the entire banking sector performing well as a whole.
 
For example, the impacts of a wide-ranging sales scandal which started about two years ago are still being battled by Wells Fargo in addition to the pressure on its mortgage business due to a stiff fall in refinancing. The earnings per share of the lender missed Wall Street.
 
On the other hand, there was 10 percent year-on-year decline in the trading business of JP Morgan.
 
(Source:www.reuters.com)






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