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For the fourth quarter, Wells Fargo says its earnings rose 17% from a year ago. One of the main reasons, according to the banking giant, is it benefited from the recently passed GOP tax bill, even while it incurred additional costs related to improper sales practices and other matters.

Wells said Friday that it earned $6.15 billion in the quarter, or $1.16 per share, versus $5.27 billion, or 96 cents per share, in the same period a year ago. Analysts polled by FactSet had expected Wells Fargo to report a profit of $1.23 a share.

The bank recorded a $3.35 billion benefit in the quarter tied to the Trump tax bill. Wells Fargo had $7 billion in deferred tax liabilities, basically taxes it may have owed in the future, and was able to write down some of those liabilities for a gain. Wells Fargo now expects its effective annual tax rate to be 19%.

The bank also had $3.3 billion in charges due to pending litigation against the company, which includes the continuing investigation into the bank’s unethical sales practices and an investigation into the bank’s mortgage business. Lastly the bank had an $848 million gain from selling its insurance unit.

Wells continues to try to shake off the fallout from its 2016 sales practices scandal, and a subsequent scandal in mid-2017 where the bank sold car insurance policies to customers who didn’t need it.

While profits in the consumer banking division rose to $3.67 billion compared to $2.73 billion in the same period a year ago, much of that growth was tied to the tax gain that Wells Fargo recorded this quarter. Consumer loans fell to $956.8 billion from $967.6 billion a year earlier, notable in a period when higher economic growth and higher consumer confidence should have translated into more loans issued to consumers. The bank’s net interest margin also did not improve in the quarter, despite the Federal Reserve raising interest rates four times in the last year.

Firm wide, revenues were $22.1 billion compared with $21.6 billion in the same period a year earlier.

Wells is unique among the big banks in having deferred tax liabilities. One of its competitors, JPMorgan Chase, wrote down roughly $2 billion in deferred tax assets in its fourth-quarter results, reported earlier Friday.

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JPMorgan Chase results

JPMorgan Chase & Co. said its fourth-quarter results fell 37% from a year ago, as the bank took a significant one-time charge to its results due to the recently passed Trump tax bill.

JPMorgan said Friday it earned $4.23 billion in the fourth quarter, or $1.07 a share, down from $6.73 billion, or $1.71 a share, in the same period a year earlier. Excluding a $2.4 billion charge tied to the tax bill, the bank would have earned $6.7 billion, or $1.76 a share, which beat analysts’ forecasts of who $1.69 a share.

Like many banks after the 2008 financial crisis, JPMorgan had billions of dollars of what are known as tax-deferred assets on its balance sheet. These are basically credits it could have used to pay future income taxes. These credits built up after the big Wall Street banks took billions of dollars in losses from bad mortgages and other toxic assets.

Because the new tax bill lowered the corporate tax rate to 21%, the value of those tax-deferred assets had to be written down. That $2.4 billion one-time charge covers the change in value of those assets. Other banks, like Bank of America, Citigroup and Goldman Sachs are all expected to take similar actions as they report their results over the next couple of weeks.

Despite the write down, JPMorgan Chase CEO Jamie Dimon said in a statement that the new tax bill is a “significant positive for the country.”

“U.S. companies will be more competitive globally, which will ultimately benefit all Americans,” Dimon said.

JPMorgan now expects its effective corporate tax rate to be roughly 20%. In comparison, JPMorgan paid an effective tax rate of 28.4% in 2016 and a tax rate of 31.9% in 2017.

Outside of the tax bill, JPMorgan’s results were positively impacted by rising interest rates. The Federal Reserve has raised its benchmark interest rate four times between December 2016 and December 2017, which allows banks to charge more for customers to borrow. The bank’s net interest income was $13.03 billion in the quarter, up 11% from a year ago.

But other parts of JPMorgan’s businesses, most notably its trading desks, did not fare as well in the quarter. Last year was an abnormally quiet year for financial markets.

Less volatility means less trading, which in turn means less revenue for the banks since fewer investors are paying trading commissions and traders can’t take advantage of significant price changes.

JPMorgan’s trading division reported revenue of $4.4 billion in the quarter, down 22% from a year earlier. Like previous quarters, JPMorgan’s stock trading revenues were steady to flat, while commodities, currencies and bond trading were the most negatively impacted. They were down 27%.

Originally published on Advisor.ca
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VSiva

There are pros and cons of President Trump’s tax bill and it certainly benefits some and affects other.

Big banks have benefitted immensely at the expense of ordinary investors in many ways even during subprime crisis. Politicians must act in the best interest of the nation than listen or act to satisfy lobby groups and big corporations.

Political leaders should lead nations based on principles that help growth, prosperity and harmony and not try to satisfy a group of people and/or win elections.

Tuesday, Jan 16, 2018 at 6:24 pm Reply

John Goossens

Thanks for the article on Trump and his tax bill….my son in law lives in New York City and is head of JonesLangLasalle for NYC and Boston as well as the upper eastern coast….I send him the advisor link every time there is an item related to the United States and how it may effect his company as well as some of his clients include The Empire State Building, Chrysler Building etc…so anything that Mr. Trump does will indirectly or directly effect his company in the United States…

Thank you,
John Goossens
Personal Financial Services
St. Thomas, Ontario
Canada

Friday, Jan 12, 2018 at 1:05 pm Reply