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JPMorgan's tax rate slides after $2.4 billion bite at year's end

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JPMorgan Chase released earnings figures on Friday. CFO Marianne Lake said that the lower tax rate, about 20 percent in the near term compared with 29.6 percent in the third quarter of 2017, is a "meaningful benefit for us." (Daniel Tepper/Bloomberg)

JPMorgan Chase's tax rate will slide about 10 points this year under a Republican tax overhaul that cost the largest U.S. lender $2.4 billion at the end of 2017.

The lower rate, about 20 percent in the near term compared with 29.6 percent in the third quarter of 2017, is a "meaningful benefit for us," Chief Financial Officer Marianne Lake told reporters on an earnings call Friday. "Our clients are still digesting the tax bill, but they now have certainty and clarity, so overall, we expect this to be a net positive for capital markets and be supportive of loan demand over time."

The Tax Cuts and Jobs Act — which reduced the top U.S. corporate rate to 21 percent from 35 percent — also came with some short-term pain, however. Other provisions, including a one-time charge on assets held overseas, trimmed net fourth-quarter earnings at the largest U.S. lender by 69 cents a share.

The bank's so-called repatriation charge on money outside the U.S. was $3.73 billion, compared with an estimated $3.3 billion at investment banking rival Goldman Sachs and just $173 million at Wells Fargo. The levy was designed to boost the U.S. economy, since it lets companies bring cash back to the U.S. without an additional penalty; the previous system would have charged the applicable tax rate on every such move.

JPMorgan, however, can't return much of the money on which it was taxed, since the funds are held overseas largely to meet the liquidity requirements of nations where the lender is doing business, Lake explained.

Excluding repatriation and other one-time items, the bank's quarterly profit of $1.76 topped the $1.69 average projection from analysts surveyed by FactSet.

Across all JPMorgan's businesses, revenue climbed 4.5 percent to $25.5 billion in the last three months of the year as higher balances for home, auto and credit-card loans in the community banking unit helped compensate for a 34 percent drop in bond-trading, which garnered $2.22 billion.

The business had spiked in late 2016 as customers reacted to Britain's unexpected decision to leave the European Union and real estate mogul Donald Trump's surprise victory over Hillary Clinton, a former secretary of state and first lady, in the U.S. presidential election.

"We're always comparing it to 2016, which was an extraordinary year," Lake noted, but even with lower revenue, fixed-income trading still generated much more money than what the bank paid to obtain the cash used in it, she noted.

The bond-business results were worse than analyst Brian Kleinhanzl of brokerage Keefe, Bruyette & Woods expected, even after accounting for one-time charges, a trend that bodes ill for JPMorgan’s rivals, which report quarterly performance next week.

Fixed-income trading may drop 21 percent at Bank of America, 22 percent at Citigroup, 25 percent at Morgan Stanley and 31 percent at Goldman Sachs, he projected.

JPMorgan climbed 0.5 percent to $111.35 in New York trading early Friday, in line with the broader KBW Bank Index.