Court Decision Spells New Trouble for Banks: Wells Fargo & Company (WFC) and More

The Bank of New York Mellon Corporation (NYSE:BK) announced today it expects to have to absorb an $850 million charge from the IRS, after a court said the bank couldn’t utilize certain foreign tax credits it had come to count on. And BNY Mellon isn’t the only American bank that might be affected by this decision.

1 for you, 19 for me
According to Financial Times, Wells Fargo & Company (NYSE:WFC) has also benefited from the foreign tax credit scheme, which was arranged through British banking giant Barclays. The deals are called Structured Trust Advantage Repackaged Securities, or STARS, and were set up by Barclays from 1999 to 2006.

Wells Fargo & Co (NYSE:WFC)The suit against BNY Mellon was brought by the IRS, which claimed that STARS “amounted to tax shelters that exploited loopholes between U.S. and U.K. laws.” BNY Mellon plans to appeal, but if the decision is upheld, it could allow the IRS to also come after Wells Fargo, as well as North Carolina-based BB&T Corporation (NYSE:BBT) .

You’ll be just fine, probably
BNY Mellon stated that it will be able to easily absorb the charge, and I believe them: A quick glance at the balance sheet shows more than $165 billion in cash on hand for the country’s ninth largest bank, which means taking an $850 million hit — while not fun, it’s also not imperiling. And if the bank loses its appeal, so long as it starts figuring these denied tax credits into the cost of doing business, it will likely be fine.

Neither Wells nor BB&T has commented yet on the decision, nor is it yet known how much money they’re into these STARS for. But with more than $216 billion in cash on the balance sheet, Wells is also very well-capitalized and should therefore be able to easily absorb whatever potential costs lie down the road. Like BNY Mellon, Wells is also a very smartly run, conservative bank, and it unlikely got itself into anything it couldn’t handle.

BB&T? Well, with only $4.25 billion on the balance sheet and nearly $22 billion in debt, it’s not so well capitalized; let’s just hope management was smart in its dealings with the Brits, because an $850 million hit would not be so easily absorbed.

In case you didn’t notice, Wells Fargo is one of my favorite banks in the market today. Its dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains?

The article Court Decision Spells New Trouble for Banks originally appeared on Fool.com and is written by John Grgurich.

Fool contributor John Grgurich has no position in any stocks mentioned. Follow John’s dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich. The Motley Fool owns shares of Wells Fargo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!