Bank of America Corp. (BAC) is giving $1,000 bonuses tied to the tax-overhaul bill to more than half of its employees, making the bank the latest company to announce such a perk since the legislation passed this week.
The tax legislation, signed by President Donald Trump on Friday, includes a large cut in the corporate tax rate, which is expected to significantly boost profits, especially for banks. Telecoms and banks are among those expected to get a huge boost from the overhaul because most of their operations are domestic and they pay higher effective rates than firms in sectors such as pharmaceuticals or technology, which have intellectual property or operations outside the country.
Following the bill’s passage, a number of companies announced plans to share that windfall, at least in part, with employees.
Other banks have also announced pay increases since the tax bill passed Congress. Wells Fargo & Co. (WFC), PNC Financial Services Group Inc. (PNC), BB&T Corp. (BBT) and Fifth Third Bancorp (FITB) said they would raise their minimum wage to $15 an hour. Bank of America already pays its employees that minimum wage. Some of those banks are also paying certain employees a one-time bonus similar to Bank of America’s.
Goldman Sachs Group Inc. (GS) analysts estimated in December that the measures, which include a 21% corporate tax rate, would boost large bank earnings by about 13% in 2018.
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Some banks will, however, have to take a one-time hit to profits from writing down what are called “deferred tax assets.” These are created by losses, in many cases huge ones racked up during the financial crisis, and act as IOUs that can be used to offset future tax bills. They will lose value due to the tax changes.
On Friday, Bank of America said in a filing that it will take a one-time roughly $3 billion hit to profits in the fourth quarter due to the tax bill, largely from the deferred tax asset write-down. That amount was expected. Citigroup Inc. (C) in early December said it would take around a $20 billion hit to profits from the version of the tax bills initially passed by Congress.