Banks among big win­ners in Trump’s tax law

The Pak Banker - - FRONT PAGE - NEW YORK -AP

Nearly 3,000 em­ploy­ees of Fifth Third Bank are get­ting a pay hike at the end of the year, thanks to the new tax law. The Cincin­nati-based com­pany, which op­er­ates the sixth-largest bank­ing op­er­a­tion in the Sara­sota-Man­a­tee re­gion, is rais­ing its min­i­mum wage to $15 an hour as well as giv­ing 13,500 work­ers a one-time bonus of $1,000.

"We want to in­vest in our most im­por­tant as­set - our peo­ple," said pres­i­dent/CEO Greg Carmichael, adding that the tax cut in the law al­lowed the bank to re-eval­u­ate its com­pen­sa­tion struc­ture. Fifth Third is join­ing big banks such as Wells Fargo and PNC in pass­ing along some of the sav­ings they will see from the cor­po­rate tax cut signed Dec. 29 by Pres­i­dent Trump.

The na­tion's banks are ex­pected to be among the big­gest win­ners from the changes in tax law, with the busi­ness tax rate slashed from 35 per­cent to 21 per­cent. Among the ma­jor S&P sec­tors, fi­nan­cial com­pa­nies now pay the high­est ef­fec­tive tax rate, at 27.5 per­cent, ac­cord­ing to an anal­y­sis of his­tor­i­cal tax rates by Wells Fargo.

Bankers in South­west Florida are still dig­ging into how the tax changes will af­fect their op­er­a­tions, but they see it as a plus.

"The tax re­form bill should specif­i­cally be good for small busi­ness, and any­thing that is good for small busi­ness is good for com­mu­nity bank­ing," said Char­lie Mur­phy, mar­ket pres­i­dent in Sara­sota County for The Bank of Tampa. "When we put money in the hands of small busi- ness own­ers, they tend to use it, so the bill should be very pos­i­tive for growth rates within our mar­ket. "We should have more money to lend out, and more money to in­vest within the com­mu­ni­ties where we op­er­ate," he said.

Florida has been a hot­bed for merger-an­dac­qui­si­tion ac­tiv­ity among banks in re­cent years, and some won­der if wealth­ier banks will cut more deals. "We think it's too early to tell what is go­ing to hap­pen with the mar­ket long-term, but I think we'll see some rev­enue growth, which could im­pact M&A," Mur­phy said. Lenders will ben­e­fit if tax changes pro­vide an eco­nomic boost that spurs more bor­row­ing and higher in­ter­est rates. Stock an­a­lysts say large U.S. banks will see an av­er­age 13 per­cent gain in earn­ings per share from pay­ing less in taxes.

"The changes in this bill, par­tic­u­larly the re­duc- tion in busi­ness tax rates, will help grow the econ­omy and cre­ate jobs, which will ben­e­fit all Amer­i­cans," said Rob Ni­chols, pres­i­dent of the Amer­i­can Bankers As­so­ci­a­tion. "Thanks to this leg­is­la­tion, Amer­ica's banks will get to ex­pand their role as the lifeblood of the econ­omy by in­creas­ing fi­nan­cial ser­vices, in­vest­ing in new and more con­ve­nient tech­nolo­gies, and open­ing more doors of op­por­tu­nity for their cus­tomers."

But some won­der if changes in home­owner in­cen­tives could curb res­i­den­tial lend­ing. Moody's chief econ­o­mist Mark Zandi says house prices will suf­fer un­der the plan. The new law sig­nif­i­cantly re­duces the value of the mort­gage-in­ter­est de­duc­tion and prop­erty-tax de­duc­tions. The value of those de­duc­tions is re­duced by the dou­bling of the stan­dard de­duc­tion, thereby de­creas­ing the num­ber of house­holds that will item­ize and take ad­van­tage of the mort­gage-in­ter­est de­duc­tion.

"Also, the higher mort­gage rates that re­sult from the higher bud­get deficits and debt un­der the plans weaken hous­ing de­mand," Zandi said. Some banks also will take a one-time hit to earn­ings, as the lower cor­po­rate tax rate will re­duce the value of taxde­ferred as­sets and force write-downs. One an­a­lyst says gi­ant Cit­i­group could face a charge of up to $17 bil­lion. But, over­all, banks ap­pear buoyed by the tax cut, and for some their first steps are re­ward­ing em­ploy­ees. Pitts­burgh-based PNC, the 10th-largest bank in Sara­sota-Man­a­tee by de­posits, said it will pro­vide a $1,000 cash pay­ment to 47,500 em­ploy­ees in the first quar­ter and add $1,500 to each pen­sion plan ac­count. It also will raise its min­i­mum age to $15 per hour by the end of 2018.

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