“We estimate ~20% of the profits from the traditional managers and ~30% from the alternative asset managers are derived from businesses outside of the US, so the decline in the corporate tax rate would be very helpful for the traditionals – with many paying corporate tax rates north of 30%, and having large US businesses,” according to a Credit Suisse note posted by Teresa Rivas of Barron’s.
Speculation about tax benefits for banks comes as the Federal Reserve nears a December interest rate hike, widely cited as the primary catalyst behind the financial services sector’s recent upside.
Financial entities like banks will benefit from expanding margins as rates climb. A rising rate environment may reflect a strengthening U.S. economy, and a healthier economy would help borrowers have an easier time repaying loans, with banks stuck with fewer non-performing assets. Moreover, rising rates means that banks will generate greater revenue from the spread between what they pay deposit savers and the prime rates they charge credit-worthy clients and other highly-rated debt.
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