Short-term pain, long-term gain: The one-time impact of the new US tax law masks strong improvements.
Banks across North America took big hits to their earnings with the enactment of the US Tax Cuts and Jobs Act of 2017, as they marked down the value of certain deferred tax assets and liabilities. However, net interest income rose, along with higher interest rates and loan balances.
US banks insured by the Federal Deposit Insurance Corporation (FDIC) reported a 40.9% decline in net income in the fourth quarter of 2017, largely as a result of charges related to the new tax act. Net interest income rose 8.5% from the same quarter a year earlier, while total loan and lease balances increased more than $164.1 billion, as demand for credit picked up.
“Notwithstanding the one-time impact of the new tax law, the overall performance of the industry continued to be positive,” Martin Gruenberg, FDIC chairman, said in a press release. Full-year 2017 net income fell 3.5% from 2016, but the FDIC estimates it would have risen by 7.2% without the tax changes. The number of “problem banks” fell in the fourth quarter of 2017 to 95, the lowest in 10 years.
Regional winner Bank of America reported strong client activity across all of its businesses last year. “Responsible growth delivered solid results in 2017. Pretax earnings rose 17%, and we continued to close in on our long-term return targets,” CEO Brian Moynihan said in a statement. “We gained market share across our businesses while carefully managing credit, risk exposures and expenses.” Some 145,000 of the bank’s employees received $1,000 bonuses last year. BofA’s fourth-quarter 2017 earnings of $2.4 billion included a charge of $2.9 billion related to the tax act.
BofA and J.P. Morgan are tied as the leaders in the large corporate banking market in the US, according to Greenwich Associates. Some 85% of large US companies use these banks for corporate banking services.
Citi is the leading cash-management provider to US companies in every major geographic region around the world and is Global Finance’s choice as the best bank in the US. Citi has about 200 million customer accounts and does business in more than 160 countries and jurisdictions. Its fourth-quarter 2017 earnings were erased by a charge of $22 billion related to the US tax reforms.
Citi CEO Michael Corbat said in the bank’s fourth-quarter 2017 earnings review: “Revenue growth and strong expense management brought us to a full-year efficiency ratio of 57.7%, an improvement of over 150 basis points from 2016. … In terms of capital, we returned over $17 billion to our shareholders during the year and reduced our common shares outstanding by over 200 million shares.”
In Canada, Royal Bank of Canada is the market leader and one of the top 15 largest global banks by market capitalization, with operations in 36 countries. Dave McKay, RBC president and CEO, said in a news release, “Our strategy for sustainable growth is built on prudently managing risks and effectively deploying capital for strong returns through the cycle.” In its first fiscal quarter, ended January 31, the bank earned more than $3 billion, which includes a charge of $178 million related to US tax reform. Return on equity was 17.4%. Strong client activity and volume growth across most businesses drove the bank’s first-quarter earnings.
Our winner in Bermuda, Butterfield Bank has agreed to buy Deutsche Bank’s banking businesses in the Cayman Islands, Jersey and Guernsey. The deal could boost Butterfield’s deposit base by about 20%. The bank’s earnings rose 32% last year to a record of over $153 million. The core return on average common equity was 19.7%. “These strong results were driven by our specialized banking and wealth-management businesses that generate consistent fee income and an expanding net interest margin that benefited from our efficient deposit franchise and a rising rate environment,” said Michael Collins, Butterfield’s chairman and CEO, in the bank’s announcement of its fourth-quarter results.
Best Banks In North America 2018
Regional Winner – Bank of America
Royal Bank of Canada