Trump Tax Cut
President-Elect Trump promised significant cuts to personal and corporate taxes in his campaign. The Republican Congress and Senate are thought to be supportive of cuts, albeit not necessarily to the extent proposed by Trump. The following link is to a Bllomberg article describing the anticipated impact of the tax change on banks earnings (both short and long term) as well as regulatory capital. https://www.bloomberg.com/politics/articles/2016-11-30/trump-s-tax-cut-means-billion-dollar-writedowns-for-u-s-banks
How do you think bank stock investors will react to the tax cut once it is enacted? Why?
The article mentions that there will not be much impact on banks’ regulatory capital maintenance (a critical success factor in the industry). This is because deferred tax assets are largely excluded from the calculation of regulatory capital.
Why do you think regulators exclude certain deferred tax assets? Do you agree with their position?
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Banks are expected to be the top benefiters of the tax cut in comparison to other industries. They are therefore expecting much higher profits than they are expecting currently under the high interest rates. The stock bank investors will therefore react to this by investing more on the bank…
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