Magazine article American Banker

Loan Growth from Tax Cuts Might Take a While

Magazine article American Banker

Loan Growth from Tax Cuts Might Take a While

Article excerpt

Byline: Alan Kline

It is going to take more than a cut in corporate taxes to encourage businesses to take out more bank loans to start building new facilities or buying more equipment.

Though business owners are certainly more optimistic about the direction of the economy since Congress passed a law that slashes the corporate tax rate to 21%, it's doubtful their borrowing will increase meaningfully until they see more signs of more robust growth, bankers say.

Dallas-based Comerica, for example, said it expects its loan growth to closely track the gross domestic product, which most economists predict will increase between 2% and 3% in 2018. Though that is in line with current trends, it's a pace that is "unlikely to excite many investors," Sandler O'Neill said in a research note to shareholders Tuesday.

"Overall, our customer sentiment is more positive given the progress Washington has made on tax and regulatory relief, but remains cautious as we closely watch for signs of stronger economic growth," Comerica Chairman and CEO Ralph W. Babb said on the bank's fourth-quarter earnings call Tuesday.

Other CEOs are also warning bank investors and analysts not to get their hopes up that the tax cut will lead to a surge in new borrowing.

On Friday, PNC Financial Services Group Chairman and CEO William Demchak said that its impact on borrowing will be so negligible that the Pittsburgh company is not even building it into its loan projections for 2018. That echoed comments he made at an investor conference last month -- before President Trump signed the Tax Cuts and Jobs Act into law -- when he said that it's "wildly optimistic" to assume that businesses have been sitting on the sidelines waiting for Congress to act. …

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