US Banks' 2018 Net Income Rose

Tom Burroughes

22 February 2019

Tax legislation that kicked in at the end of 2017 helped boost the year-on-year total rise in net income across the banking sector last year but even if that impact is excluded, lenders’ earnings rose.

As this publication has reported during the quarterly reporting season, prominent banks that conduct wealth management logged broadly strong results for 2018, although assets under management in many cases were hit by the selloff to equities, and declines in some other asset classes.

Data issued yesterday by the Federal Deposit Insurance Corp showed that net income for the industry was $59.1 billion in the fourth quarter. More than half of the increase in net income was attributable to the 2017 Tax Cuts and Jobs Act reform, which led to one-off charges in fourth quarter 2017 and a lower effective tax rate moving forward.

“Normalizing fourth quarters 2017 and 2018, using the average effective tax rate for the banking industry prior to the tax reform, we estimate that quarterly net income would have been 50.3 billion dollars in fourth quarter 2018, 18.5 per cent higher than fourth quarter 2017. The return-on-assets ratio increased to 1.33 per cent in the fourth quarter from 0.58 per cent one year ago,” FIDC said yesterday in a presentation on the results.

“Full-year 2018 net income increased to 236.7 billion dollars, up 44.1 per cent from 2017, primarily due to a decline in applicable taxes resulting from the 2017 tax law. Adjusted for tax-reform effects, we estimate that full-year 2018 net income would have been 207.9 billion dollars, or 13.6 per cent higher than 2017”, FIDC added.