BANKS & TAXES: How We Assess EPS Impact & Adjusted P/E Multiples

 

PDF ATTACHEDFIG Partners 3-31-17 Banks & Taxes — Impact On EPS & P-E Multiples

  • Street consensus EPS estimates in 2017 reflect modest adjustments for lower federal tax rates thus far. The difference between ‘17 and ‘18 median tax rates is 1.0 to 2.0 percentage points, although possible reductions may be far greater.
  • We see two approaches to estimating Banks’ EPS impact from lower federal taxes: (1) reduce to a specific level (i.e., a 25% rate) or (2) factor a “capture” percentage of any drop in the Federal statutory rate (i.e., 80% = 8 points on a 10pt drop to 25%). Bank managements have used the “capture” language in recent conference calls and our own conversations.
  • This report outlines both EPS methods for large-cap Banks on Page 2 and 3, and shares other statistics on Page 4.