Big banks just received the first installment of benefits corporate America will reap from the new federal tax law. The haul: more than $2.5 billion.

The latest gain came Tuesday when Goldman Sachs Group Inc. reported first-quarter profit that rose 26% from a year earlier. This was aided by a lower corporate tax rate that boosted earnings by about $232 million.

Overall, the combined earnings of Goldman and the four major national banks— JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Bank of America Corp. —increased by more than $2.5 billion in the quarter because of the lower corporate rates under the tax-overhaul law enacted in December, according to an analysis of the banks’ results by The Wall Street Journal.

That amount is only a modest-size chunk of the banks’ total first-quarter earnings—less than 10% of their combined net income applicable to common shareholders. But it comprises a major chunk of their year-over-year earnings growth.

Without the tax savings resulting from the new lower corporate tax rate, Wells Fargo’s earnings would have declined from a year ago instead of increasing, and much of the year-over-year growth at Citigroup and Bank of America would be gone. Losing the tax bump would have cut the earnings growth of JPMorgan to 28% from 35%; for Goldman, growth would have shrunk by at least a quarter.


The $2.5 billion gain isn’t the entire story. For one thing, other provisions of the tax law prompted some of the same banks and many other companies to take big charges against their earnings in the fourth quarter. From that perspective, the first-quarter boosts merely help even things out.

Still, the new data suggests investors may have to look below the surface of companies’ announced results to get a true sense of how their operations are performing.

“Before investors get excited about the growth of earnings of these companies, they need to look at the sources of that growth,” said Ravi Gomatam, an analyst at Zion Research Group, an accounting and tax research firm. “A good portion of that growth is likely to be from taxes.”

The big banks acknowledge the reduction in the corporate tax rate, to 21% from the previous 35%, played a role in their first-quarter earnings growth. But they also maintain their operations are solid and growing.


Bank of America’s earnings growth was “driven not only by tax reform but also operating leverage and continued strong asset quality,” Chief Financial Officer Paul Donofrio said Monday on the bank’s first-quarter earnings call.

Michael Corbat, Citigroup’s chief executive, said Friday that “a lower tax rate” was a contributing factor to the bank’s results along with “strong business performance.”

Marianne Lake, JPMorgan’s CFO, acknowledged the “tailwind” of the tax overhaul, but said the bank’s results also benefited from “broad-based strength.”

The Journal’s analysis calculated what each bank’s results for the latest first quarter would have been if the effective tax rate from last year’s first quarter was still in effect.

The retail banking industry is undergoing another major shift, and the future looks high-tech, sophisticated, and, for big banks, very urban. So what has changed? Photo: Shaumbé Wright/The Wall Street Journal

Each bank’s tax rate has declined dramatically since then. Wells Fargo, for instance, had an 18.8% effective tax rate in the latest first quarter, down from 27.5% in the year-ago quarter. Applying a 27.5% effective tax rate to the latest quarter’s pretax income would have shaved about $636 million off earnings, cutting Wells Fargo’s diluted earnings per share to 99 cents from the actual $1.12. (Wells’ first-quarter 2017 earnings were $1.03 per diluted share.)


Citigroup, which had a 23.7% effective tax rate this quarter, would have seen about $452 million cut off its first-quarter earnings if its year-ago 31.1% effective tax rate had been in effect. That would have eliminated most of its roughly $530 million in net-income growth from a year ago.

The tax overhaul added about $798 million to Bank of America’s net-income growth. At JPMorgan, it added about $470 million to its earnings.

Some banks made it easier than others to assess their results without the impact of tax reform. While all four banks disclosed the figures for their current and year-ago pretax income, excluding the effect of taxes altogether, Bank of America highlighted them in the headline of its press release, noting that its pretax income had risen 15%, even as its diluted EPS rose 38%.

In reality, the impact of the tax overhaul isn’t quite as straightforward. Other tax-law provisions cut into companies’ earnings, like charges for revaluing deferred tax assets and repatriating foreign profits, and some companies could face additional taxes because of the law’s new limit on the deductibility of companies’ interest payments.


Mr. Gomatam notes not all companies will see the kind of tax-rate reductions the big banks did, and some tax savings could go to a company’s customers or employees rather than profits. Investors “need to see that all of the tax savings are falling to the bottom line.”

Investors may have looked through the numbers and realized that much of the banks’ earnings growth came from a tax cut, not from operations. Since announcing earnings, Wells Fargo shares have fallen 4%, JPMorgan’s have slipped 2.8% and Citigroup’s have lost 3.3%.

Write to Michael Rapoport at Michael.Rapoport@wsj.com