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Christmas Comes Early for Bank Stocks: Tax Reform Bill Passed
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A huge Christmas gift has arrived early for corporate America as the much-awaited tax reform bill has been passed. The bill cuts corporate tax to 21% from 35%, allowing a one-time tax break to companies that have stashed cash overseas.
This is likely lead to huge savings and cash repatriation for the companies. The bill is likely to benefit a few sectors along with some stocks. If we talk about banks and technology stocks, the former stand to benefit more than the latter.
While tech companies that have significant amounts of cash stashed overseas will gain from one-time repatriation, they are less likely to benefit from tax rate cut as compared to the banks.
Wondering how banks are anticipated to gain more? Apart from bringing back overseas cash, banks will benefit considerably from lower tax rates. Per a Wells Fargo analyst, finance companies pay the highest effective tax among the major S&P sectors.
Therefore, several large banks including Wells Fargo (WFC - Free Report) , JPMorgan (JPM - Free Report) and Bank of America (BAC - Free Report) are likely to record a double-digit increase in earnings in the coming years driven by lower tax rate. Further, it will be easier for global banks to compete with lower taxed foreign banks.
Additionally, smaller domestic banks will also gain. They are expected to use increased earnings by upgrading technology and may even pass on the benefits to their employees in form of pay rise and one-time bonus. Well, many banks including Washington Federal, Inc. (WAFD - Free Report) , Wells Fargo and Fifth Third Bancorp (FITB - Free Report) have already announced such initiatives.
Also, as overseas cash is brought back, it is expected to provide an impetus to M&As activities, thereby boosting investment banking. Also, as the bill will lower tax rates on wealthy individuals, asset management units of banks are expected to see a rise in money available for investment.
Moreover, as the tax bill spurs economic improvement leading to a rise in lending activities and higher interest rates, banks will benefit indirectly as well. So, this is a win-win situation for the banks.
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.
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Christmas Comes Early for Bank Stocks: Tax Reform Bill Passed
A huge Christmas gift has arrived early for corporate America as the much-awaited tax reform bill has been passed. The bill cuts corporate tax to 21% from 35%, allowing a one-time tax break to companies that have stashed cash overseas.
This is likely lead to huge savings and cash repatriation for the companies. The bill is likely to benefit a few sectors along with some stocks. If we talk about banks and technology stocks, the former stand to benefit more than the latter.
While tech companies that have significant amounts of cash stashed overseas will gain from one-time repatriation, they are less likely to benefit from tax rate cut as compared to the banks.
Wondering how banks are anticipated to gain more? Apart from bringing back overseas cash, banks will benefit considerably from lower tax rates. Per a Wells Fargo analyst, finance companies pay the highest effective tax among the major S&P sectors.
Therefore, several large banks including Wells Fargo (WFC - Free Report) , JPMorgan (JPM - Free Report) and Bank of America (BAC - Free Report) are likely to record a double-digit increase in earnings in the coming years driven by lower tax rate. Further, it will be easier for global banks to compete with lower taxed foreign banks.
Additionally, smaller domestic banks will also gain. They are expected to use increased earnings by upgrading technology and may even pass on the benefits to their employees in form of pay rise and one-time bonus. Well, many banks including Washington Federal, Inc. (WAFD - Free Report) , Wells Fargo and Fifth Third Bancorp (FITB - Free Report) have already announced such initiatives.
Also, as overseas cash is brought back, it is expected to provide an impetus to M&As activities, thereby boosting investment banking. Also, as the bill will lower tax rates on wealthy individuals, asset management units of banks are expected to see a rise in money available for investment.
Moreover, as the tax bill spurs economic improvement leading to a rise in lending activities and higher interest rates, banks will benefit indirectly as well. So, this is a win-win situation for the banks.
Of the above-mentioned banks, Washington Federal carries a Zacks Rank #2 (Buy), while JPMorgan, Wells Fargo, BofA and Fifth Third have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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