Big Quarter for US Big Banks

Last week I was really impressed by the Q1 Earnings of the 6 biggest American banks

• Citi
• Morgan Stanley
• Wells Fargo
• JP Morgan Chase
• Bank of America
• Goldman Sachs

Part of the outstanding result is a consequence of the lower tax rate in effect since this January. Compared to Q1 2017, these six big banks have reported a total increase on Net Profit of $5.4 Billion; of this amount lower taxes accounted for $2.1 Billion.

The chart below provided by "The Economist" is very interesting. It shows the Q1 2018 ROE of the six banks and a comparison between their effective tax rate for the year 2018 and 2017. As you can see the reduction of Taxes for this year is notable.

Goldman Sachs is an exception. The bill was unusually low a year ago because of a change in the treatment of employees' shares and options.

Another good sign of the financial health of big banks is represented by the average ratio of common equity to risk-weighted assets which is a key regulatory gauge of banks' strength; at 12.5%, it is more than 3 times as high as at the end of 2008 (according to Autonomous Research. 

I think that during the next crisis banks should be in a better position compared to 2007-2008; however the risk has been transferred, in my opinion, to other financial institutions like Private Equity, Mutual Funds and ETFs.