Corporate Responses to Tax Bill (AT&T, Wells Fargo)

by Michael Keane

This is part 2 of a series on the Tax Bill Likely Outcomes. A link to Part 1 is here.

When the tax bill was announced, both AT&T and Wells Fargo made announcements of employee bonuses and minimum wage level increases. Slowly but surely, other companies have made similar announcements. While this is good, it isn't a coincidence that AT&T and Wells Fargo were the first to show their support for the tax bill. There are some things missing in these announcements that cloud the meaning of the message and need to be addressed before a conclusion of corporate analysis when it comes to the tax bill.

Both AT&T and Wells Fargo currently have direct interests in the government. AT&T is going through a monster merger. Wells Fargo is currently going through legal troubles with the government. For both companies to get announcements out to show their favor of the government's new tax bill is not surprising. Both companies have also spent a lot of money (like other companies) on lobbying for the tax bill. With the way that this administration works, having these companies make these announcements right after the bill passes was not coincidence at all. It was likely a calculated decision in order to curry favor with the administration so that the government will be influenced in their decision making. The companies already had the amount of cash needed to cover the bonuses and the higher minimum wage.

Another area of compensation that has not been addressed publicly by the companies is executive bonuses. Because of the tax bill, earnings will likely be higher. Because executive bonuses can be tied to earnings and stock prices, the likelihood that executive bonuses will be at the highest level of the expected range is very strong. These bonuses will probably dwarf those actions the companies have made for the rank and file. But you won't see voluntary press releases for this. When you combine that the lower personal tax rates, you can get a decent idea as to why so much money went into lobbying for this bill.

As time progresses, take a look at executive bonuses, corporate infrastructure spending, and labor wages through earnings reports. This will tell you if the companies are reflecting their true intentions in terms of their tax bill promises. Only then can we fully understand what the true position of the companies in regards to the tax bill actually are and act accordingly.

**Disclosure - Both KDK Fund and KDK Options (partners of KeaneVCC) have had stock or options positions in AT&T and Wells Fargo in the past. There are no current holdings of either company.** 

 ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**

Tax Bill Likely Outcomes

by Michael Keane

Now that some of the dust has settled on the new tax bill, one outcome that existed before the bill looks to be at least the same if not expanded because of the bill. Due to behavioral habits of compensation and spending, the ability to move up economically has probably been weakened by the bill. The disparity of the economic classes will likely be more apparent and more difficult to traverse. This is part 1 of a series and will provide a general outline of the forthcoming posts to support this view on the subject.

Forthcoming posts include:

1)  What was and was not included in the press briefings by AT&T and Wells Fargo after the tax bill was announced; specifically their government interests

2) How both cash and debt levels for corporations and individuals that were already at historic levels will likely continue to grow;

3) How the stock market will now be cheaper on a EPS PE basis due to the tax bill which could propel it even higher; creating higher bonuses for executives.

4) How the debt of this bill will likely go unpaid by the increase in GDP and current young generations will have to pay it back while current adult affluent groups enjoy the benefits.

Examples and data will be presented in each of the following posts.

Only time will tell if this analysis has any level of correctness.  This troublesome bill feels like a quick thank you to the president and not a bill born and solidly made through careful analysis and thoughtful integration. The bumps for labor cannot be one-offs. Otherwise the legacy of this bill will not shine down favorably.