Banks are Big Winners from Tax Cut

“The good news is that tax reform has produced both current and future benefits for our shareholders,” PNC’s president and chief executive Bill Demchak told analysts on Friday. He said the bank’s preference would be to divert the tax savings “toward dividend” — which is to say, to return a higher dividend to shareholders.

More than 70 financial institutions have announced they will raise wages or offer bonuses to employees in the wake of the tax law’s passage, including big firms such as Bank of America and community banks such as Bank of the Ozarks. All told, those institutions account for about half of the companies that have promised raises or bonuses since President Trump signed the bill into law, according to a running list tallied by Americans for Tax Reform, a low-tax advocacy group.

The payouts to workers reflect a small slice of the windfall that banks large and small are in line to receive. The law includes a reduction in the corporate rate to 21 percent from a high of 35 percent last year, as well as a 20 percent deduction for income from pass-through companies. One-third of all community banks are organized as pass-throughs, according to the Independent Community Bankers of America, which represents those firms and was among the groups pushing for a lower pass-through rate.

Analysts projected the financial industry would reap some of the largest benefits from that reduction given that banks typically paid much higher effective tax rates in the past than many other industries, like manufacturing.

The boon for banks comes as the industry begins to regain some of its swagger in the wake of the financial crisis and as it seeks to roll back some of the post-crisis regulations put in place by the Obama administration under the 2010 Dodd-Frank law.

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Officials at top banks have mostly showered Mr. Trump with praise for his economic policy agenda, which they say is boosting growth. Jamie Dimon, the chief executive officer of J.P. Morgan, called the new tax law a “significant positive outcome for the country” in a news release accompanying the bank’s earnings on Friday.

The gains come in spite of a one-time hit of $2.4 billion that J.P. Morgan reported in the fourth quarter, the result of a provision in the law that forces companies to pay a one-time tax on profits that are held overseas.

Other large banks will report earnings on Tuesday and are expected to similarly reveal large savings from the tax overhaul.

American Express, in a financial filing earlier this month, said the lower corporate rate “is expected to be a significant ongoing benefit to us. Beginning in 2018, we anticipate an effective tax rate in the low twenties before discrete tax items.”

It remains to be seen whether the tax cuts’ benefits create lasting benefits for workers. Mr. Dimon said on Friday that J.P. Morgan would be “increasing and accelerating” investments in “employees, customers and communities,” though he did not specify what that would mean for individual workers. On a call with analysts, Marianne Lake, the bank’s chief financial officer, suggested some of the benefits would be used to increase dividends and stock buybacks.

Other banks have announced additional share buybacks in recent weeks, including Bank of America and Fifth Third Bank. Both of those banks also said they would provide bonuses to some workers as a result of the tax overhaul.

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Wells Fargo, which has been under a cloud of regulatory and legal challenges, said last month that it would raise its minimum pay to $15 an hour. A spokesman initially said the move was not related to the tax bill, but reversed course a day later and said that, in fact, the tax cuts did prompt the move.

Correction: January 16, 2018

An earlier version of this article misspelled the surname of PNC Financial’s chief executive. He is Bill Demchak, not Demcheck.

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