WFC Wells Fargo and Company

Banks have been among the biggest beneficiaries of the tax overhaul, reaping billions of dollars in savings after the corporate tax rate was cut to 21% from 35%.

In the past, banks had tended to pay more in taxes than big companies in other sectors, since so much of their business is centered in the U.S. That means the big drop in the tax rate benefited them even more.

JPMorgan Chase, Bank of America and Wells Fargo all had effective tax rates in the high teens or low 20s during 2018, excluding one-time items -- a sharp drop from the past, when the biggest banks' tax rates tended to be in the high 20s or low 30s.

That meant the banks kept much more of the earnings they generated. Together, the four biggest national banks -- JPMorgan, BofA, Wells Fargo and Citigroup -- saved more than $11 billion in 2018 by paying taxes at their new lower effective rates, according to an analysis by The Wall Street Journal.

Some of those profits flowed back to bank employees. Some banks said they would give $1,000 bonuses to many employees, raise their minimum wage to $15 an hour or higher, or both.

[DOWNLOAD THE E-BOOK: "The New World of Taxes: 2019"]

Banks had to go through some pain first to reach those benefits. Within weeks after the tax overhaul was enacted, many big banks recorded big upfront charges to their 2017 earnings that the new law required them to take immediately, largely to write down the value of their deferred tax assets and record one-time taxes on their earnings from outside the U.S. Citigroup took the biggest hit, $22.6 billion, but other banks had sizable charges as well -- $4.4 billion at Goldman Sachs, and $2.9 billion at BofA.

But once past that, the lighter tax bills boosted the banks' financial performance, and will keep doing so in 2019. Wells Fargo, for instance, has said it expects its effective tax rate to be about 18% in 2019, excluding any unanticipated items.

One thing the lower tax rate won't do any longer, however, is contribute to banks' year-over-year earnings growth. In 2018, the banks' growth rates benefited from comparing current periods with the new lower tax rate against year-ago periods with the old higher tax rate -- and banks derived a big portion of their growth from those savings.

Michael Rapoport

Write to michael.rapoport@wsj.com

(END) Dow Jones Newswires

February 15, 2019 08:14 ET (13:14 GMT)

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