But according to a recent analysis from S&P Market Intelligence, Biden’s proposed tax plan could lead to a combined $7 billion increase in corporate taxes annually for the nation’s top 10 banks.
Big banks can shrug off a bigger tax bill
While a tax hike by Biden would hurt their profits somewhat, it may not be a disaster for financial firms.
The S&P analysts noted that a higher corporate tax rate could actually boost bank valuations. That’s because many big banks have deferred tax assets that represent future savings which can help offset higher rates. The value of these assets would actually increase if tax rates went up.
What’s more, Biden is unlikely to push for a significantly higher corporate tax rate, some experts say.
“With the economy likely still struggling to recover from the pandemic-induced recession…moderate Democrats in conservative states..would push back on a significant tax increase,” Isaac Boltansky, an analyst for Compass Point Research & Trading, wrote in the S&P report.
More fees should boost bank profits too
How high taxes will be in 2021 and beyond is just one piece of the profit puzzle. For many banks, expectations for continued low interest rates and the outlook for the broader economy are bigger issues.
“Asset managers should do better than commercial banks. Financials that are more dependent on generating interest income from loans will find it more challenging,” said Scott Knapp, chief market strategist of CUNA Mutual Group, in an interview with CNN Business.
Savage added that the top banks also are likely to attract more deposits from consumers in this environment. Leading financial firms are still perceived as safe places to park cash.
“When the world seems scary, you want money in the largest and systemically most important institutions. The strong are getting stronger,” Savage said.
“This quarter should be more impressive than last quarter. Equity underwriting revenue will be a big win thanks to the strong IPO market. There’s a better mix of fees,” said David Konrad, a bank analyst with D.A. Davidson.
And as long as the broader economy continues to improve, that’s good for big banks, too.
“The guidance from the top banks could be more optimistic because the operating environment is less challenging,” said CUNA Mutual Group’s Knapp.