JP Morgan Chase and Wells Fargo are among the first of the US banking behemoths who will kick off a new earnings season in earnest this week, with analysts keenly awaiting updates on how US tax changes will affect the biggest lenders.
The Republican party led by US President Donald Trump passed a wide-ranging tax reform package before Christmas which will impose a one-off tax on earnings held offshore.
Multiple US banks have already disclosed they will lose money in the short term from the changes. Goldman Sachs, which reports its results next week, will take a $5bn (£3.7bn) hit because of the repatriation tax, it announced before the new year.
However, the one-off nature of the repatriation tax will likely be outweighed in investors’ calculations by the longer-term benefits to the companies from a much reduced corporate tax rate, slashed from 35 per cent to 21 per cent.
The tax changes have done nothing to end the bull run for US bank shares during the past year, which has seen the KBW bank index, a measure of 24 massive US lenders, return almost 20 per cent over the past year – although that is short of the roughly 23 per cent return on the broader S&P 500 index of US stocks.
American banks have also been boosted by the Federal Reserve, whose three interest rate rises over the course of 2017, most recently in mid-December, are already boosting net interest margins.
The world’s most systemically important bank, JP Morgan, will report its full-year results on Friday before US markets open, after beating estimates in its third-quarter earnings. Earnings per share are forecast to dip to $1.69 from $1.76, according to the consensus of forecasts collected by Zacks Investment Research.
Consensus forecasts for Wells Fargo, meanwhile, forecast unchanged earnings per share from the previous quarter, at $1.04. The bank has suffered from a string of consumer scandals in the US, including employees opening fake accounts and wrongfully charging fees to customers.
Other US financial giants also reporting earnings on Friday include PNC Financial, the bank, and the world’s largest asset manager, Blackrock, which is set to see earnings per share roughly even at $5.96.