SO THIS is how normality feels. Between April 13th and April 18th America’s biggest banks reported a strong set of first-quarter earnings, with a helping hand from the taxman. Some are more profitable than they have been for years. They are paying billions to shareholders; regulatory reins are being loosened. Yet the stockmarket shrugged. On April 18th the S&P 500 index of banks’ share prices was 4.1% lower than at the start of reporting season.
Banks expected three main effects from the corporate-tax cut signed into law by President Donald Trump in December. The first was a write-down of deferred tax assets—past losses that could be set against future bills—which clobbered most lenders’ bottom lines in the fourth quarter but did no real damage. (Some, including Wells Fargo, carried deferred liabilities and hence recorded a gain.) The second was a permanent reduction in their tax bills. The third was a boost to business from a more lightly taxed America Inc.
The direct benefits of lower taxes are plain. Although pre-tax profits at the six biggest banks rose by $4.3bn, compared with the first quarter of 2017, taxes fell at five of them. (At the sixth, Goldman Sachs, the bill was unusually low a year ago because of a change in the treatment of employees’ shares and options.) Of a total increase in net profit of $5.4bn at those five, lower...Continue reading