Pennsylvania’s largest bank has joined other big U.S. companies in setting aside a piece of its initial gains from federal income-tax reform and using it to fund a one-time employee bonus. The company also is making a larger payment to its charitable foundation.
PNC Financial Services Group Inc. said it will “provide a $1,000 cash payment to approximately 47,500 employees in the first quarter of 2018.” The bank also will give $1,500 to boost retirement savings to the 45,000 employees who qualify for the program, spokesman David Chamberlin told me. So PNC will be giving the workers a total of at least $92.5 million.
“The tax-reform law creates an opportunity to reward our employees,” William S. Demchak, PNC chairman and chief executive officer, said in a statement. The bank also said it will make a $200 million contribution to the PNC Foundation, its charitable arm, which focuses on preschool care.
The typical large U.S. bank will boost profits by about 13 percent thanks to the tax reform, as top corporate tax rates drop from 36 percent to 21 percent, according to an estimate by analyst Brian Kleinhanzl at Keefe Bruyette & Woods, a New York investment bank specializing in financial-services companies. By that measure, PNC, which earned $4 billion in after-tax profits last year, will boost earnings by more than $500 million a year thanks to the lower tax rate.
KBW expects that large banks such as PNC will use higher profits to buy back shares in an effort to force share prices higher, and to pay more dividends to shareholders. “A large part of of the tax benefits will initially drop to the bottom line, and we expect increased earnings will result in greater capital return” to shareholders, analyst Kleinhanzl added in his report.
Industry watchers also expect that banks will boost profits thanks to the Trump administration’s efforts to roll back government lending restrictions imposed after the 2008 financial crisis, and that they will use the additional earnings to purchase other companies and seek new business.
PNC ranks among the dozen largest U.S. banks, as ranked by loans and other assets. Based in Pittsburgh, it has branches in 19 Eastern states and is a part-owner of the BlackRock investment company, the nation’s largest.