U.S. Bank Earnings Boosted by Tax Law -- 3rd Update
January 17 2018 - 1:10PM
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 the 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. However, shares were down about 2% at midday, while the
broader market was up.
One development that seemed to rankle investors: U.S. Bank
executives said in a call with analysts that they expected to
reinvest about 25% of the bank's tax savings into business
initiatives such as technology, automation and higher wages for
entry-level employees. But they didn't specify how much of the tax
savings they expected to return to shareholders.
Chief Financial Officer Terry Dolan said in an interview that he
expected long-term shareholders to view the bank's spending as a
favorable development that would eventually build profits. It is
the short-term investors, he said, who were selling the shares on
Wednesday. "We're thinking longer term about the changes that are
impacting the banking business," Mr. Dolan said.
Mr. Dolan also said in the interview that he expected the other
75% of the bank's tax savings to flow through to the bottom line
and be returned to investors through dividends and buybacks.
Earnings were hurt by the potential anti-money-laundering
settlement. 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.
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 12:55 ET (17:55 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
US Bancorp (NYSE:USB)
Historical Stock Chart
From Mar 2024 to Apr 2024
US Bancorp (NYSE:USB)
Historical Stock Chart
From Apr 2023 to Apr 2024