Banks and corporations are already releasing quarterly and annual reports adjusted for the impact of the tax overhaul bill, which was signed into law by President Trump on Dec. 22.
The new tax system, which provides huge tax cuts to corporations, has lead to record growth in the stock market, with retail giant Walmart and health insurer United Health, among others, reporting profits significantly higher than had been forecasted. Several of the nation’s large banks have released figures showing huge losses resulting from the new tax code.
New York-based financial conglomerate Citigroup has reported an $18.3 B loss, while JP Morgan Chase bank took a $2.4 billion loss. Much of the loss is the result of how the new U.S. tax code compares to tax codes in other countries where banks have foreign investments, according to Reuters, and taxation on tax-deferred assets, according to the Associated Press. Tax-deferred assets were credits given to banks by the government to help them pay income tax while recovering from the Great Recession, which became taxable under the new tax code. The number of tax-deferred assets still held by a bank, as well as the amount of their overseas investments and other factors, determine how different banks will be affected by the new tax code and explain the differences in the reports by Citigroup and JP Morgan Chase.
While it is not currently known how long it will take banks to recover from the setback posed by the tax reform, economists and bankers agree that this is a one-time hit and that the long-term impacts of the new tax code will be a good thing. “Tax reform is a clear net positive for Citi and its shareholders,” said Michael Corbat, Chief Executive and Citigroup.
Banks have also been benefiting from overall stock market strength, as most indexes are breaking records for growth in recent months resulting from optimism over Trump’s presidency and further optimism from the passing of the tax overhaul. If the government shuts down next week, as Republicans and Democrats struggle to find common ground, any impact on the stock market while banks are still recovering could have amplified economic consequences.
