Bank of America (
) incurred income tax expense of $915 million in the year 2010, the
lowest among large U.S. banks like
), Goldman Sachs (
), Morgan Stanley (
). JPMorgan, for example, paid a total income tax of about $7.5
billion in 2010.
We have a price estimate of $15.42 for Bank of
, about 10-15% above the current market price.
Bank of America's Income Tax Expense Turning
In 2010, Bank of America's total income tax expense was $915
million, on a loss of about $1.3 billion. In 2009, Bank of America
had a total income tax benefit of $1.9 billion on a net income of
$4.3 billion; and in 2008, the bank had income tax expense of $420
million on a total income of $4.4 billion.
Some sources suggest a sentiment that Bank of America is
avoiding income taxes, but it is important to note the
different components that go into the income tax calculation for
corporations like BofA.
Major components of a corporation's income tax expense, apart
from U.S federal income tax, include state tax expense, non-U.S.
corporate tax differential, changes in the federal deferred tax
assets and certain tax-exemptions. Thus, while Bank of America
incurred current U.S. federal income tax expense of $1.55 billion,
$1.53 billion and -$463 million in 2008, 2009 and 2010
respectively, its effect on the company's total income tax expense
is diluted when other components are taken into account.
Effective Tax Rate Outlook for BofA
We expect Bank of America's effective tax rate to remain at
about 31% throughout our forecast period, slightly lower than its
2006 high of about 34% due to its high deferred tax assets of 27
billion. Notably, value of Bank of America's stock is quite
sensitive to the effective tax rate by our estimates. A drop in the
effective tax rate by 3 percentage points, for example, implies a
7% increase in our $15.42 price estimate for Bank of America's
stock. You can test this scenario, and others, by dragging the
trend line in the interactive chart above.
See our complete analysis for Bank of America