The U.S. tax overhaul cost JPMorgan Chase & Co. $2.4 billion last year. Consider it a down payment on a more profitable future.
The bank said that while it took accounting charges in the fourth quarter tied mostly to levies on foreign earnings required under the new law, its effective tax rate will drop this year to 19 percent from 32 percent. That means that if JPMorgan generates the same pretax profit this year as it did in 2017, earnings will balloon by more than $3.5 billion.
JPMorgan is the first big U.S. bank to detail the windfall the industry will receive under the new tax regime, which was signed into law last month. Discussion about the ramifications of the changes is likely to dominate earnings season over the firms’ quarterly results.
Chief Financial Officer Marianne Lake has said that some of those gains will probably evaporate as banks compete with one another on pricing and services.
“The enactment of tax reform in the fourth quarter is a significant positive outcome for the country,” Chief Executive Officer Jamie Dimon said in a statement Friday. “U.S. companies will be more competitive globally, which will ultimately benefit all Americans.”
The bank is working on a long-term plan to use some of the windfall to benefit employees and customers, Dimon said on a call with analysts. Among potential changes could be improved pricing for low- and moderate-income borrowers in areas such as mortgages. The firm’s tax rate will likely rise above 20 percent within two years, Lake said.
JPMorgan’s fourth-quarter charge was largely driven by unremitted overseas earnings facing taxation under the Republican tax overhaul.