The tax bill may boost 2018 earnings of big U.S. banks by an average of 13 percent, according to Goldman Sachs. Leading the way will be Wells Fargo & Co. (17 percent) and PNC Financial Services Group Inc. (15 percent).
Morgan Stanley says the overhaul is a net benefit for U.S. banks because it will help them compete better with lower-taxed international rivals. Many provisions in the bill, including repatriation of overseas cash, could spur U.S. mergers and acquisitions that would boost investment banking. And banks’ wealth management units are likely to see more money rolling in because the bill reduces tax rates on the rich.
But a reduction on interest-expense deductions will weigh on earnings. That provision may also cause companies to borrow less. It could be especially painful for banks such as Synovus Financial Corp. that have large exposure to real estate and commercial loans, Morgan Stanley said.
Lenders focused on consumers, such as Discover Financial Services and Synchrony Financial, are better positioned, because individuals already are unable to deduct interest expense, so there wouldn’t be a change in behavior, according to Morgan Stanley.