U.S. Bank Earnings Boosted by Tax Law -- 2nd Update
January 17 2018 - 11:04AM
Dow Jones News
By Christina Rexrode
U.S. Bancorp, the biggest regional bank in the country, said
Wednesday that the new tax law helped boost its fourth-quarter
earnings.
The bank also disclosed that it had set aside money for a
potential settlement related to its anti-money-laundering
program.
Profit at the Minneapolis-based bank rose 13% to $1.69 billion,
from $1.49 billion a year ago. Per share, earnings were 97
cents.
On an adjusted basis, which strips out a tax-related gain and
the legal accruals, earnings would have been 88 cents per share.
That beat the 87 cents expected by analysts polled by Thomson
Reuters. Shares were down 2.2% in morning trading, on a day when
the broader market was also down.
The bank said it set aside $608 million for "regulatory and
legal matters." The Office of the Comptroller of the Currency has
previously flagged U.S. bank's anti-money-laundering program for
deficiencies, and the bank said it expects to pay civil monetary
penalties to resolve this.
The bank had also previously disclosed that it was being i
nvestigated by the Manhattan U.S. attorney's office for its
relationship with a former customer, race-car driver Scott Tucker,
who was convicted of fraud related to payday loans. The bank said
it is working on a settlement, which it expects to include a
deferred prosecution agreement and payment of a penalty.
Revenue rose 4% to $5.64 billion, helped by rising interest
rates and increased lending. Like its peers, U.S. Bank has
benefited from higher interest rates, which allow it to charge more
on loans. The bank's net interest income grew 6%. The Federal
Reserve raised short-term rates three times last year.
Average loans grew 2.6% over the year, driven by consumer
lending.
In a call with analysts, U.S. Bank Chief Executive Andy Cecere
said the new tax law was "a very positive development." U.S. Bank
already announced that it, like some of its peers, will raise wages
for lower-paid employees and donate to charity with some of its tax
savings.
Bank executives said Wednesday that they expect to reinvest
about 25% of their tax savings into "business growth initiatives,"
including technology, innovation and business automation.
Mr. Cecere was upbeat, saying that the new tax law could create
jobs and encourage consumers to spend, and hinting at how
regulators were looking more favorably on the banking industry.
"The economy appears to be on firm footing," Mr. Cecere said. "The
regulatory environment is becoming more supportive of growth."
The new tax law is expected to help banks over the long term, by
lowering the corporate tax rate from 35% to 21%. But the new law is
having a disparate impact across bank earnings this quarter. U.S.
Bank and PNC Financial Services Group Inc., for example, received a
short-term earnings boost. But Citigroup Inc., which reported
results Tuesday, had its quarterly earnings wiped out by the tax
law.
The tax law hurt Citigroup's earnings because of that bank's
deferred tax assets, which are past losses that the company can use
to defray future tax bills. With a lower tax rate, those assets are
no longer as valuable.
U.S. Bank, however, has deferred tax liabilities, or taxes it
expects to pay in the future. The new, lower tax rate is a boon for
those future earnings. U.S. Bank's net deferred tax liability was
$588 million at the end of the third quarter.
Write to Christina Rexrode at christina.rexrode@wsj.com
(END) Dow Jones Newswires
January 17, 2018 10:49 ET (15:49 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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