U.S. Banking Quarterly Comment: 1Q18 (Lower Tax Rate a Boon to Bank Bottom Lines)

...Returns Aided by Lower Tax Rates: Quarterly results for the 19 large U.S. banks included in this report were notably and positively impacted by the lower tax rates enacted by the Tax Cuts and Jobs Act (TCJA). As expected, returns on average assets (ROAs) and returns on equity (ROEs) were notably above those reported in 1Q17, with much of the jump in reported earnings resulting from the lower tax bill. Fitch Ratings estimates that for the largest eight bank holding companies, the median reduction in effective tax rates from 1Q17 to 1Q18 was approximately 8%, equal to about $3 billion of tax expense savings. Many banks noted that 1Q18 effective tax rates were especially muted given accounting-related employee stock-based compensation. Pre-Tax Results Strengthening: While bottom-line returns will likely be structurally higher due to lower effective tax rates, Fitch notes that pre-tax earnings showed notable signs of improvement as well compared with last year. For the banks that publicly report...

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