JPMorgan Chase & Co. (JPM) is approaching a deal that would allow it to enjoy $1.4 billion in tax refunds, according to a Wall Street Journal report.
The tax refund may come from a clause in the economic stimulus bill. The law allows companies to apply losses from 2008 or 2009 for tax refunds against taxes paid in the previous five years, instead of the prior two years.
In order to extend the jobless benefits, the corporate-tax-refund approach was included in the economic stimulus bill in November last year. However, it was initially not a part of the bill.
Washington Mutual Inc., whose banking operations were taken over by JPMorgan in Sep 2008, is eligible for tax refunds of approximately $2.6 billion as a result of significant losses in 2008. Currently, JPMorgan is in talks with the Federal Deposit Insurance Corp. and bondholders for the refund.
According to the report, JPMorgan is not the only company to benefit from the 2009 tax refund law. More than 250 companies are seeking for a $12 billion in tax refunds under the law.
JPMorgan had reported fourth quarter earnings of 74 cents per share, substantially ahead of the Zacks Consensus Estimate of 61 cents. The better-than-expected results were primarily aided by the continued strong performance of the company’s Investment Bank segment.
All segments except Consumer Lending and Card Services delivered solid results during the quarter. However, persistently high levels of consumer credit costs and increased provisions for credit losses were the downsides.
Also, the full repayment of the bailout money by the company inspires our confidence in the stock as it is now free of government intervention. While we anticipate continued synergies from the company’s diversification and strong capital position, increasing provisions and a pressured credit quality will drag down future earnings. As such, we continue to have a Neutral recommendation on the shares of JPMorgan.
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