Wall St Banks Hit by Tax Changes and Low Volatility

One-off tax charges have wiped out quarterly profits at US banks, but all of the big names beat earnings estimates

James Gard 18 January, 2018 | 3:17PM
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Morgan Stanley

Despite a record end to 2017 for US stock markets as whole, profits at the major US investment banks have taken a hit in the last quarter of the year. Unusually low volatility in equity markets and lower transactions in fixed-income or bond markets have harmed trading divisions' profits. The fourth quarter of 2016, which Q4 2017 is measured against, was an usually turbulent one for markets because of the US presidential election. And tax changes have put a large hole in firms' quarterly profits. Nevertheless, in terms of earnings per share (EPS), the highest-profile Wall Street firms all beat analysts’ forecasts for the quarter. Rising interest rates last year also boosted banks’ income payments.

Banks have had to account for one-off charges in the period after the Trump administration’s tax reforms – while big corporations will ultimately benefit from the drop in the company tax rate from 35% to 21%, they are having to absorb the costs of changes to how overseas earnings are taxed and how deferred taxes are treated.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Bank of America Corp46.37 USD2.88Rating
Citigroup Inc72.29 USD2.10Rating
Goldman Sachs Group Inc406.07 USD3.80Rating
JPMorgan Chase & Co166.61 USD1.92Rating
Morgan Stanley102.14 USD1.12Rating

About Author

James Gard  is content editor for Morningstar.co.uk