STRESS TESTS
US tax code likely to clip banks’ wings
Banks could be tested against the most extreme change in conditions since the reviews began in 2009
New York — Quirks in the new US tax code are sowing doubts over how much big banks can boost dividends and stock buy-backs in 2018, threatening to take the shine off what are likely to be strong quarterly profits. Changes in how firms can measure past losses to tax bills and more extreme scenarios in the Federal Reserve’s bank stress tests could make it harder for lenders to secure approval in June to increase payouts. "The strength of first-quarter results could be overshadowed by disappointing talk about capital returns," Nomura Instinet analyst Steven Chubak said. Analysts expect JPMorgan Chase, Wells Fargo and Citigroup to report higher first-quarter profit on Friday. Eight years of US economic growth have been a tailwind for banks, but the Fed has since 2013 made its stress test scenarios more challenging each year. The tests are meant to ensure banks have enough capital in sharp downturns to meet regulatory requirements. Meanwhile, the new tax law could deliver a one-two punch...
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