Bank of America takes tax hit, vows longer-term boost

NEW YORK: Bank of America Corp’s quarterly profit was nearly chopped in half by tax-related charges but the lender’s management promised the new US tax system would eventually benefit shareholders.

The tax overhaul, signed by US President Donald Trump late in December, is taking a chunk out of Wall Street profits this quarter as lenders swallow one-time charges on overseas earnings and account for tax benefits that are now less valuable because of the lower corporate rate.

Leaving aside the tax hit, which Bank of America announced late last year, profit topped analyst expectations.

Investors expect the eventual windfall from lower tax rates to be passed on through higher dividends and more share buybacks. They are also watching for knock-on effects of the overhaul like higher borrowing, trading and deal activity that would boost the bank’s bottom line.

Bank of America Chief Executive Brian Moynihan said some tax savings would be funnelled into technology investments but the bulk of the windfall would be returned to investors.

The lender expects its effective tax rate this year to be around 20 per cent, 9 percentage points lower than 2017. The second-largest US bank by assets booked a $2.9 billion charge related to the tax overhaul, which dragged its net income down to $2.37 billion.

Excluding that charge, it earned $5.3 billion, or 47 cents per share. According to Thomson Reuters I/B/E/S, excluding the tax charge and another item, the company earned 48 cents per share, topping analysts’ estimate of 44 cents. — Reuters