Banks among big winners in Trump’s tax law
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.