New tax bill could blow $3bn hole in BofA’s Q4 earnings

Bloomberg

Bank of America Corp. expects to take a roughly $3 billion hit to fourth-quarter net income after the US tax bill slashed corporate rates. The reduction is “primarily” from a lower value of net deferred tax assets, according to a filing by the Charlotte, North Carolina-based firm. So-called DTAs pile up in cases where a company loses money and can’t immediately enjoy the tax benefits of those losses.
The legislation signed into law by President Donald Trump slashes the corporate rate to 21 percent from 35 percent, meaning many firms will be forced to write down tax assets accumulated at higher rates.
The Republican-drafted law also delivers a package of temporary cuts for businesses and most individuals.
Bank of America “will continue to analyse the Tax Act to determine the full effects of the new law, including the new lower corporate tax rate,” the company said in the filing. The bank is scheduled to report earnings on January 17.
Citigroup Inc. said earlier this month that it may take a noncash charge of $20 billion for the fourth quarter, depending on the final version of the legislation. The bank hasn’t updated that figure.
Chief Executive Officer Brian Moynihan had earlier said the lender is pushing to deepen some of the business it condu-cts in China as the world’s
No. 2 economy opens further to foreign investment.
The US bank is working toward “local incorporation” in China so that it can more easily help firms there sell debt, Moynihan said in Bloomberg Television interview. It has several hundred people working in the country and already has a debt underwriting business focussed on China, he said. There’s “a lot of work for US companies and other global companies” to provide services to Chinese firms including securities sales and cash management, Moynihan said. “It’s a good market for us.” China promised last month to let foreign firms take majority stakes in the nation’s securities firms, lifting restrictions that long frustrated US and European banks.
Bank of America is among the few global investment banks that lack a joint venture in China. Goldman Sachs Group Inc. and Morgan Stanley
have signaled intentions to take controlling stakes in their Chinese JVs.
CONSUMER CREDIT
Brian Moynihan isn’t among those concerned about the debt levels of Americans.
“I’m not really worried about credit on the consumer side, especially for us because we stay at the very high end — but even if you look overall,” Bank of America Corp.’s chief executive officer said in a Bloomberg Television interview.
Outstanding US consumer credit continued its upward climb in October, reaching a record $3.8 trillion, according to data compiled by the Federal Reserve. That figure has investors worried, but bank executives have insisted that borrowers have kept up with payments amid an improving economy and record-low unemployment.
Still, Bank of America is expected to set aside more money to cover souring loans in the fourth quarter.
Analysts in a Bloomberg survey estimate provisions for loan losses will climb 16 percent to $963 million in the period.