Barclays Bull: BofA Says British Bank Is Big Beneficiary From US Tax Reform

The U.S. tax reform bill is approaching the finish line this week, and Barclays PLC (ADR) BCS could benefit the most among non-U.S. banks, according to Bank of America Merrill Lynch. 

The Analyst

BofA's Michael Helsby reiterated a Buy rating on Barclays PLC (ADR) and increased the price target from 220 GBp to 225 GBp.

The Thesis

Around one-third of Barclays' 2016 adjusted profit before tax was from the U.S., and this weight may increase to 40 percent by 2020, Helsby said. (See the analyst's track record here.)

A decrease in corporate tax would average the tax rate the bank is paying down to around 25 percent, which would increase the earnings per share by 8 to 12 percent, according to BofA. To achieve the EPS increase, Barclays PLC (ADR) would need to reduce U.S. deferred tax assets by around £1.2 billion, said Helsby.

BofA's strategy teams expect to see higher rates and a stronger U.S. dollar in the event of a lower corporate tax rate, which could lead to a higher U.S. rate/FX volatility and to a potential improvement in trading income, Helsby said. Barclays' U.S. operations could become more valuable if tax rate decreases and higher U.S. profit lead to lower comprehensive capital analysis and review, or CCAR, needs, the analyst said. 

The Price Action

Barclays PLC (ADR) was up 1.40 percent at $10.85 at the close Monday. 

Related Links: 

Bank Of America Says Barclays Shares Are Cheap Enough To Buy

Lloyds And RBS Named The Best UK Bank Stocks 

Photo by AP Monblat/Wikimedia.