Trump tax cuts could mean billions to banks

The six largest U.S. banks could see annual profit jump by an average of 14 percent if President Donald Trump delivers on his promise to cut corporate taxes.

The lenders, which stand to benefit more than other industries because they typically have fewer deductions, could save a combined $12 billion a year, according to data compiled by Bloomberg. Trump has called for cutting the corporate tax rate to 15 percent from 35 percent.

While investors have focused on Trump’s campaign pledge to relax bank regulations, tax cuts could happen faster and their impact could be greater. The effective federal tax rate for the biggest banks averaged 28 percent for the three years ending in 2015, data compiled by Bloomberg show, twice the 14 percent rate paid by all large companies.

Bank shares have rallied since the election, with the KBW Bank Index up 29 percent.

“Tax reform is difficult, but raising or cutting taxes is easy,” said Fred Cannon, head of research at Keefe, Bruyette & Woods. “A lower tax rate would be a boon for banks, more so than other sectors, because banks don’t get many of the deductions industrial or retail firms get and end up paying a higher effective rate.”

Wells Fargo & Co.’s savings in 2015 would have been $3.8 billion had the tax rate been 15 percent and existing deductions were disallowed.

The San Franciscobased bank is poised to reap the biggest benefit because its earnings are overwhelmingly in the U.S. and taxed at the 35 percent rate.

The savings could boost Wells Fargo’s earnings by 16 percent.

JPMorgan Chase & Co., the nation’s largest lender, would save about $3 billion a year.

Citigroup would save less because more of its earnings are outside the U.S.